A STUDY ON JAPAN'S REACTION TO THE 1973 OIL CRISIS

By

ATSUSHI YAMAKOSHI

B.A., Waseda University, 1981

A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF

THE REQUIREMENTS FOR THE DEGREE OF

MASTER OF ARTS

in

THE FACULTY OF GRADUATE STUDIES

(Department of I n t e r d i s c i p l i n a r y Studies)

(Commerce/Economics/Political Science)

We accept t h i s thesis as conforming

to the required standard

THE UNIVERSITY OF BRITISH COLUMBIA

June 1986

(c) Atsushi Yamakoshi, 1986

 In p r e s e n t i n g this thesis in partial f u l f i l m e n t of the
r e q u i r e m e n t s f o r an advanced degree a t the University
of British Columbia, I agree that the Library s h a l l make
it freely available for reference and study. I further
agree that permission f o r extensive copying of this thesis
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Department O f I n t e r d i s c i p l i n a r y Studies

The U n i v e r s i t y o f B r i t i s h Columbia
1956 Main Mall
V a n c o u v e r , Canada
V6T 1Y3

Date June 1986

)E-6 (3/81)
 Abstract

The object of t h i s dissertation i s to investigate

Japan's reaction to the 1973 o i lc r i s i s i n order to answer

two major questions. First, why a n d how was Japan able to

recover from the 1973 o i lc r i s i s ? S e c o n d l y , what was

distinctive about Japan's reaction to the o i lc r i s i s as

compared w i t h the reactions of other countries?

Chapter One provides a general review of the 1973 o i l

crisis. I t also discusses t h e f o c u s and the basic

methodology of t h i s dissertation.

Chapter Two examines the p o l i t i c a l aspects of Japan's

reaction to the o i lc r i s i s . At the beginning of the 1970's,

the Japanese p o l i t i c a l s c e n e was in a state of historical

transition mainly because the.opinions of Japanese people

were becoming diversified after the accomplishment of

extensive economic g r o w t h . The 1973 o i lc r i s i s reflected the

differences of o p i n i o n i n the government and the c o n f l i c t of

interests among industrial sectors. This chapter pays

special attention to Japan's bureaucracy i n facing the o i l

crisis.

Chapter Three discusses the economic aspects of Japan's

reaction to the o i lc r i s i s . The o i lc r i s i s created great

confusion within the Japanese economy b e c a u s e i t occurred at

the time of the i n f l a t i o n a r y situation after the "Nixon

Shock" i n 1971. However, J a p a n recovered from the c r i s i s by

changing i t s industrial structure. The o i lc r i s i s elucidated

the vulnerability, efficiency and f l e x i b i l i t y of the

i i
Japanese economy.

Chapter Four deals with the business aspects of Japan's

reaction. Japanese business leaders tried to influence the

decision-making process of the Japanese government through

the activities of four major business organizations:

Keidanren, Nissho, N i k k e i r e n and Doyukai. Companies made

efforts to rationalize their production process by

decreasing intermediate i n p u t s . These rationalization

efforts decreased demand f o r the m a t e r i a l s produced by

oil-reliant i n d u s t r i e s and a c c e l e r a t e d the structural change

in Japanese i n d u s t r y . The cooperative relations between the

government and business and between management and labour

moderated the friction caused by this structural change.

Chapter Five offers the major f i n d i n g s of the preceding

chapters. B a s e d on those findings, i t concludes that Japan's

recovery from the 1973 o i l crisis was accomplished by the

voluntary commitment of various social f a c t i o n s to s o l v i n g

the problems caused by the crisis rather than by the

consensual efforts l e d by the government. T h i s voluntary

commitment i s recognized as the most d i s t i n c t i v e feature in

the Japanese reaction to the o i l crisis.

 Table of Contents

CHAPTER ONE

THE N A T U R E OF T H I S T H E S I S 1

1. WHAT WAS THE 1973 O I L C R I S I S ? 2

2. THE FOCUS OF T H I S T H E S I S 6

3. T A B L E S 8
C H A P T E R TWO
THE P O L I T I C A L A S P E C T S OF J A P A N ' S REACTION
TO THE 1 9 7 3 O I L C R I S I S 11

1. T H E J A P A N E S E GOVERNMENT S Y S T E M AND THE POLITICAL

S I T U A T I O N I N THE E A R L Y 1970'S 13

2. T H E A C T I O N S TAKEN BY T H E GOVERNMENT FACING THE

CRISIS 19

3. THE C H A R A C T E R I S T I C S OF THE J A P A N E S E POLITICAL

R E A C T I O N TO THE O I L C R I S I S 32

4. T A B L E S 39

CHAPTER THREE
THE ECONOMIC A S P E C T S OF J A P A N ' S REACTION
TO THE 1 9 7 3 O I L C R I S I S 42

1. THE J A P A N E S E ECONOMIC S T R U C T U R E 44

2. THE I M P A C T S OF T H E 1 9 7 3 O I L C R I S I S AND JAPAN'S

ECONOMIC R E A C T I O N 54

3. T H E C H A R A C T E R I S T I C S OF THE J A P A N E S E ECONOMIC
R E A C T I O N TO THE O I L C R I S I S 67

4. T A B L E S 70

C H A P T E R FOUR
THE B U S I N E S S A S P E C T S OF J A P A N ' S REACTION
TO THE 1 9 7 3 O I L C R I S I S 85

1. THE P O L I T I C A L R E A C T I O N OF J A P A N E S E B U S I N E S S TO
THE O I L C R I S I S 86

2. T H E ECONOMIC R E A C T I O N OF J A P A N E S E B U S I N E S S TO
THE O I L C R I S I S 94

3. T H E C H A R A C T E R I S T I C S OF THE J A P A N E S E BUSINESS
R E A C T I O N TO THE O I L C R I S I S 98

4. T A B L E S 104

iv
CHAPTER F I V E
CONCLUSION 106

BIBLIOGRAPHY 113

APPENDIX
A J A P A N E S E V I E W ON CANADA'S R E A C T I O N TO THE 1 9 7 3 O I L
CRISIS 116

1. THE P O L I T I C A L ASPECTS 116

2. THE ECONOMIC A S P E C T S 124

3. THE C H A R A C T E R I S T I C S OF T H E C A N A D I A N REACTION TO
THE O I L C R I S I S 127

4. T A B L E S 132

v
 List of Tables

(Chapter One)

1- 1. S t r u c t u r e o f E n e r g y D e p e n d e n c e of Major Industrial
Countries 8

1-2. A Basic Concept 9

1- 3. Some A s p e c t s o f J a p a n ' s R e a c t i o n t o t h e 1973 O i l

Crisis 10

(Chapter Two)

2- 1. T h e N u m b e r o f S e a t s i n t h e D i e t by J a p a n e s e Political

Parties 39

2- 2. M a j o r M e m b e r s o f T a n a k a ' s Cabinet 40

2- 3. P r i m e M i n i s t e r s of Japan ( 1 946-1 985) 41

(Chapter Three)

3- 1. E c o n o m i c G r o w t h R a t e s o f M a j o r C o u n t r i e s 70
3- 2. C o m p a r i s o n o f T a r g e t s s e t b y t h e N a t i o n a l I n c o m e -
Doubling Plan and A c t u a l Economic Performance 71

3- 3. H o u s e h o l d S a v i n g Rates of Major Countries 73

3- 4. T h e G r o w t h of Japanese Foreign Trade 74

3- 5. M a j o r J a p a n e s e T r a d e Items 75

3- 6. T h e S h i f t i n the Japanese Postwar Industrial

Structure 76

3- 7. T h e S h i f t i n Japanese Energy Supply 77

3- 8. S m i t h s o n i a n R a t e s o f M a j o r C u r r e n c i e s 78

3- 9. U.S. I n t e r n a t i o n a l Liquidity Position 78

3-10. Change i n O i lPrices 79

3-11. Major Japanese Economic Indices (1972-1975) 79

3-12. Growth of Real GNP i n Seven Industrial Countries

and t h e OECD 80

3-13. Wholesale Price Indices: International Comparison ..81

3-14. B a l a n c e o f I n t e r n a t i o n a lv i P a y m e n t s ." 82
3-15. Current Balances o f OECD C o u n t r i e s 83

3- 1 6 . Total Foreign Exchange Reserves of Major Industrial

Countries a n d OPEC C o u n t r i e s 84

(Chapter Four)

4- 1. C h a n g e s i n Intermediate Inputs i n the Processing

Industry 104

4- 2. P r o d u c t i v i t y I n c r e a s e i n the Processing Industry ..105

4- 3. T h e R a t i o of Business Establishments Implementing

Employment Adjustment 105

(Appendix)

A- 1. Some A s p e c t s of t h e Japanese and Canadian Reactions

to t h e 1973 O i l C r i s i s 132

A- 2. C o n s u m e r P r i c e I n d i c e s : I n t e r n a t i o n a l C o m p a r i s o n ..133

A- 3. C u r r e n t Balances of Major Industrial Countries ....134

A- 4. C a n a d i a n M e r c h a n d i s e T r a d e 135

A- 5. C h a n g e s i n L a b o u r C o s t s a n d P r o f i t s p e r U n i t o f
Output 136
A- 6. P r o d u c t i o n S h a r e s b y S e c t o r s , S e l e c t e d Y e a r s

1870-1 974 137

A- 7. E m p l o y m e n t Shares by Economic Sector and Industry .138

A- 8. F o r e i g n Ownership C o n t r o l of Canadian Industry ....139

A- 9. E x p l o i t a b l e O i l R e s e r v e s i n Canada 140

A-10. P r o v i n c i a l Shares i n the Manufacturing Sector

(1980) 141
A-11. The T o p T e n I n d u s t r i a l s ( 1983) 142;

vii
 Acknowledgements

Five people contributed significantly to the completion

of this dissertation. They a r e Dr. Ilan B. Vertinsky, Dr. J.

W. C. Tomlinson, Dr. Malcolm D. H. Smith, Dr. Peter N.

Nemetz and, in particular, Dr. Terence G. McGee. I would

like t o thank them a l l .

This s t u d y was made p o s s i b l e by financial support from

the Institute of A s i a n Research o f UBC, the federal

government of Canada, and the Keidanren. I thank these

organizations and appreciate Dr. McGee's c o o p e r a t i o n i n

obtaining this support. I would also like to thank Dr. Frank

C. Langdon.

Special thanks t o my Keidanren colleagues for helping

me complete my two-year s t u d y a t UBC successfully.

Finally but most importantly I thank my parents for

their encouragement and support.

viii
 CHAPTER ONE

THE NATURE OF THIS THESIS

The world economy is currently facing increased

political t e n s i o n among industrialized countries,

particularly given growing p r o t e c t i o n i s m i n the world trade

system. I t may be argued that Japan, the main target of

criticism by European and North American c o u n t r i e s because

of i t s rapidly increasing exports and i t s "closed" market,

is both the c a u s e and victim of such increased tension. 1

It

is o f t e n argued that p o l i t i c a l tensions i n the world economy

increased mainly because Japan recovered from the two o i l

crises i n the 1970's more successfully than other industrial

countries. According to this argument, the cause of

political tensions should be found i n the way Japan

1
T h e p o l i t i c a l t e n s i o n s u r r o u n d i n g J a p a n i s s y m b o l i z e d by
t h e p h r a s e " t r a d e f r i c t i o n . " T h i s f r i c t i o n c a n be c l a s s i f i e d
i n t o t h r e e major c a t e g o r i e s : Japanese e x p o r t s , the Japanese
m a r k e t , and Japanese p o l i c y and economic s t r u c t u r e . T o p i c s
c o n c e r n i n g Japanese e x p o r t s i n c l u d e the e x p o r t of such
p r o d u c t s a s t e x t i l e s , s t e e l , c o l o u r TV s e t s , a u t o m o b i l e s ,
machine t o o l s and e l e c t r o n i c s , and p o l i c y measures r e l a t e d
to J a p a n e s e e x p o r t s such as v o l u n t a r y e x p o r t r e s t r a i n t and
l o c a l content proposals. Topics concerning the Japanese
market i n c l u d e the market f o r such p r o d u c t s as
t e l e c o m m u n i c a t i o n equipment, beef and o r a n g e s as w e l l as
p o l i c y measures such as t a r i f f s and n o n - t a r i f f b a r r i e r s
(NTB). T o p i c s c o n c e r n i n g Japanese p o l i c y i n c l u d e
a g r i c u l t u r a l p o l i c y , d e f e n s e p o l i c y , i n d u s t r i a l p o l i c y and
the i n t e r n a t i o n a l i z a t i o n of t h e yen, and t h o s e c o n c e r n i n g
the Japanese economic s t r u c t u r e i n c l u d e the d i s t r i b u t i o n
system and i n t r a - g r o u p t r a n s a c t i o n s . In a d d i t i o n t o t h e s e
t o p i c s , even such i s s u e s as J a p a n e s e c u l t u r e and l a n g u a g e
s o m e t i m e s become t h e t o p i c s o f t r a d e f r i c t i o n .

1
 2

recovered from the o i l c r i s e s a n d i n how t h e Japanese

recovery differed from that of other industrial countries.

The purpose of this thesis i s t o investigate how J a p a n

reacted t o the o i lc r i s i s o f 1973. The 1973o i l c r i s i s i s

called "the f i r s t o i lc r i s i s " vis-a-vis "the second o i l

crisis" i n 1979. This thesis deals with the 1973 o i l c r i s i s

because i t had a greater impact on Japan than d i d the second

crisis i n 1979. A country t e n d s t o show i t s strengths and

w e a k n e s s e s when i t faces a crisis. In this respect i t i s

hoped that a review of Japan's reaction t o t h eo i l c r i s i s

will elucidate t h estrengths and weaknesses of Japan, and

p r o v i d e many insights into the current actions of Japan i n

the face o f contemporary economic trends. 2

1. WHAT WAS T H E 1 9 7 3 OIL CRISIS?

The 1973 o i l c r i s i s was t r i g g e r e d by the M i d d l e E a s t

War breaking o u t on O c t o b e r 6, 1 9 7 3 . 3
When t h e w a r b r o k e

out, Arabian o i lproducing countries decided t o use t h e i r

oil (sometimes described as the"fourth m i l i t a r y weapon"'

2
As f o r Japan's energy strategy i t s e l f through the f i r s t and
s e c o n d o i l c r i s e s , s e e P. N . N e m e t z , I . V e r t i n s k y a n d P.
V e r t i n s k y , "Japan's Energy S t r a t e g y a t the C r o s s r o a d s , "
Pacific Affairs 57 ( W i n t e r 1 9 8 4 - 8 5 ) : 5 5 3 - 5 7 6 .
3
The i n f o r m a t i o n on t h e h i s t o r i c a l i n c i d e n t s d i s c u s s e d i n
t h i s s u b s e c t i o n i s b a s e d o n t h a t o f Asahi Nenkan, 1974
(Tokyo: A s a h i Shinbunsha, 1974). The t r a n s l a t i o n i n t o
E n g l i s h was done by t h e a u t h o r .
" T h i s p h r a s e i s u s e d i n ibid., p. 63.
The o i l s t r a t e g y o f A r a b i a n o i l p r o d u c i n g c o u n t r i e s was a n
e f f e c t i v e weapon t o s u p p o r t t h e i r p o l i t i c a l g o a l s . F o r
instance, Japan had t o declare i t s support f o r Arabian
 3

along with t h e army, t h e navy and t h e a i r f o r c e ) to gain

bargaining power and implement o i l s t r a t e g i e s . On October

16, s i xPersian Gulf c o u n t r i e s , Saudi Arabia, Iran, Iraq,

Kuwait, Abu Dhabi and Qatar, held a conference i n Kuwait,

and decided to raise t h e o i l p r i c e by 2 1 % b e g i n n i n g t h e next

day. On t h e o t h e r hand, m i n i s t e r s of OAPEC 5

held a

conference i n Kuwait and decided t o decrease their o i l

production b y 5% p e r m o n t h . T h e y d e c l a r e d that the decrease

in their o i l production would continue until the occupation

of the Arabian territory by I s r a e l had ended and t h e r i g h t s

of P a l e s t i n i a n s i n the Middle East had been restored. On

October 18, L i b y a proposed t o implement an o i l embargo

against the United States. Following this Saudi Arabia and

other Persian Gulf countries joined i n t h e embargo.

In response to the o i l strategy o f OPEC c o u n t r i e s , t h e

major U.S. o i l c o m p a n i e s (Majors ) 6

decided to increase their

"(cont'd) c o u n t r i e s t o o b t a i n o i l supply from A r a b i a n o i l

producing countries.
5
OAPEC ( O r g a n i z a t i o n o f A r a b P e t r o l e u m E x p o r t i n g Countries)
was e s t a b l i s h e d i n 1 9 6 8 . I t s m e m b e r s c o n s i s t o f t h r e e
o r i g i n a l member c o u n t r i e s — K u w a i t , L i b y a a n d Sa,udi
Arabia--and e i g h t other c o u n t r i e s — Q a t a r , B a h r a i n , Abu
D h a b i , A l g e r i a , I r a n , I r a q , S y r i a a n d E g y p t . The o i l
e x p o r t i n g c o u n t r i e s e s t a b l i s h e d OPEC ( O r g a n i z a t i o n o f
P e t r o l e u m E x p o r t i n g C o u n t r i e s ) i n 1960 f o l l o w i n g t h e
p r o p o s a l o f I r a q . The OPEC members c o n s i s t o f f i v e o r i g i n a l
member c o u n t r i e s — I r a q , I r a n , K u w a i t , S a u d i A r a b i a , a n d
Venezuela—and eight other countries--Qatar, Indonesia,
L i b y a , U n i t e d Arab Emirates, A l g e r i a , N i g e r i a , Equador and
G a b o n . W h i l e t h e m a i n p u r p o s e o f OPEC i s t o d i s c u s s t h e o i l
s t r a t e g y o f o i l e x p o r t i n g c o u n t r i e s , t h a t o f OAPEC i s t o
d i s c u s s b u s i n e s s o r i e n t e d i s s u e s . F o r i n s t a n c e , OAPEC
discusses the establishment of o i l tanker f l e e t s of Arabian
c o u n t r i e s a n d t h e i n d u s t r i a l i z a t i o n o f i t s member c o u n t r i e s .
6
The f o l l o w i n g companies a r e u s u a l l y c a l l e d Majors: Exxon,
Gulf O i l , Standard O i l of C a l i f o r n i a , Texaco, M o b i l , Royal
Dutch S h e l l , B r i t i s h P e t r o l e u m and Companie F r a n c a i s e
Petroles (CFP).
 4

oil prices. Exxon and Shell announced a 30% increase in'

their o i l prices to their customers, including Japan. This

policy was f o l l o w e d by the other Majors.

In addition to the 70% o i l price increase, the Arab

National O i l Company a n n o u n c e d that i t would cut i t s o i l

supply t o A r a b i a O i l Co. L t d . i n Japan by 10% on October 24.

It became c l e a r i n the light of this announcement that Japan

was c o n s i d e r e d an! u n f r i e n d l y country by Arab countries. On

the following day the Majors announced that they would cut

their o i l e x p o r t s to Japan by 10%. *

At a meeting on November 4 and 5, OAPEC countries

decided to decrease o i l p r o d u c t i o n by 25% of their

production level i n September, and further decrease i t by 5%

from November t o December. As a result of these policies,

the p r i c e of o i l (Arabian light) i n c r e a s e d from US$3 per

barrel i n October 1973 t o more t h a n US$11 per barrel in

January 1974. (See Table 3-10 i n Chapter Three).

These events are usually r e c o g n i z e d as the 1973 o i l

crisis. Vernon explains the process of the crisis as

follows:

D u r i n g those f i f t e e n month of c r i s i s , a s e r i e s
o f t r a n s f o r m a t i o n s o c c u r r e d w i t h r e g a r d t o how the
c r i s i s was p e r c e i v e d . A t f i r s t , i n t h e t w o o r t h r e e
m o n t h s a f t e r O c t o b e r , 1 9 7 3 , t h e c r i s i s was generally
seen as a t h r e a t t o the s e c u r i t y of the o i l
i m p o r t e r s ' s u p p l i e s . Then, around the b e g i n n i n g of
1974, a f t e r t h e p r i c e o f c r u d e o i l had moved
v i o l e n t l y upward, the f o c u s of c o n c e r n i n most
c o u n t r i e s s h i f t e d t o t h e q u e s t i o n o f p r i c e . By
m i d y e a r o f 1974, h o w e v e r , t h e c o n c e r n o v e r p r i c e had
been c o n v e r t e d i n t o a c o n c e r n over the i n t e r n a t i o n a l
monetary mechanism as a whole; c o n s i d e r a b l e doubt
a r o s e o v e r w h e t h e r i n s t i t u t i o n s e x i s t e d o r c o u l d be
c r e a t e d t h a t w o u l d be c a p a b l e o f h a n d l i n g t h e
 5

massive s h i f t s i nfinancial resources that were

developing. 7

As f o r t h e i m p l i c a t i o n s o f the crisis for international

politics, there are several different views. Forinstance,

Penrose sees t h e 1973 o i l c r i s i s a s "the progressive

interaction ofthree separate historical developments." She8

explains the three developments as follows:

The b a s i c h i s t o r i c a l d e v e l o p m e n t s w e r e , f i r s t ,
the r i s i n g b a r g a i n i n g power o f the g o v e r n m e n t s o f
the o i l e x p o r t i n g c o u n t r i e s o f the Middle East
v i s - a - v i s t h e i n t e r n a t i o n a l companies t h a t had
discovered, developed, and long c o n t r o l l e d Middle
E a s t e r n o i l ; s e c o n d l y , t h egrowing dependence o f t h e
United States on Middle E a s t e r n , and s p e c i f i c a l l y
Arab, o i l ; and t h i r d l y , t h ee s t a b l i s h m e n t and
expansion o f I s r a e l i nP a l e s t i n e against the b i t t e r
o p p o s i t i o n o f the Arab c o u n t r i e s , butw i t h t h e
strong support o f the United S t a t e s . 9

There are some s c h o l a r s who s e e t h e crisis asa result of

U.S. strategy t ostrengthen i t s superiority i nthe field of

energy. 1 0

It i simportant and interesting t oinvestigate the

implications o f t h e 1973 o i l c r i s i s for international

politics and t o a s k such questions a s Who b r o u g h t about t h e

crisis a n d f o r what p u r p o s e ? However, i t i s n o t the purpose

of this thesis t ot r y t o answer q u e s t i o n s ofthis kind.

Whatever the main causes o f t h e 1973 o i l c r i s i s , i t i s

7
R a y m o n d V e r n o n , " A n I n t e r p r e t a t i o n , " i n The Oil Crisis, ed.
R a y m o n d V e r n o n (New Y o r k & L o n d o n : W. W. N o r t o n & C o m p a n y ,
1 9 7 6 ) , p . 1.
8
E d i t h P e n r o s e , " T h e D e v e l o p m e n t o f C r i s i s , " i n ibid., p.
39.
9
Ibid., p. 39.
1 0
0 n e o f t h e s e s c h o l a r s , T s u n e h i k o Yamada e x p l a i n s t h e o i l
c r i s . i s i nh i s paper "America no K o k u s a i S e k i y u S e n r y a k u no
S h i n T e n k a i " i n Ni hon no Enerugi Mondai . e d . Y a s u z u m i I w a o
( T o k y o : J i j i T s u s h i n s h a , 1974) p p . 9 1 - 1 2 1 .
 6

important t o acknowledge that the c r i s i s brought about great

confusion i n most c o u n t r i e s of the world. Except f o rthe o i l

producing and r e t a i l i n g companies who b e n e f i t e d from the o i l

price increase, most p e o p l e d i d n o t welcome t h e c r i s i s . The

purpose of this thesis i s to investigate how J a p a n , t h e

country which, because o f i t s heavy dependence on i m p o r t e d

oil, seems t o h a v e least welcomed t h e 1973 o i l c r i s i s ,

reacted t o i t . (See Table 1-1).

2. THE FOCUS OF T H I S THESIS

The 1973 o i l c r i s i s had various i m p a c t s on t h e w o r l d

economy. I t s impact on each c o u n t r y — a n d how e a c h c o u n t r y

reacted—differed according to the country's particular

background and s i t u a t i o n . For instance, there are obvious

differences between t h e Japanese and the Canadian reaction.

One difference i s based on a g e o g r a p h i c a l factor: Canada has

domestic r e s o u r c e s of o i l and Japan does not. Some

differences a r e based on s o c i a l elements such as the

political system, t h e economic structure, and p r e v a i l i n g

business attitudes. These are the focus of t h i s thesis. As

indicated i n Table 1-2 i t i s o f t e n argued that t h e 1973 o i l

crisis forced Japan t o make n a t i o n - w i d e e f f o r t s which

contributed t o i t s economic recovery and increased

industrial competitiveness.

It i salso argued that various geographical

disadvantages, including a lack of n a t u r a l resources, has

forced Japan t o pursue industrialization. Moreover, i n

 7

drastically changing international situations, i t may happen

that a c o u n t r y ' s advantage can, i n the long run, turn out t o

be a d i s a d v a n t a g e and v i c e versa. Table 1-3 summarizes some

aspects of Japan's reaction t o t h e 1973 o i l c r i s i s , paying

attention to the situation and p o l i c y reactions before and

after the c r i s i s .

Following t h e concept and argument stated above,

Japan's reaction t o t h e 1973 o i l c r i s i s i s investigated in

three chapters. C h a p t e r Two d i s c u s s e s the p o l i t i c a l aspects

of Japan's reaction t o t h e 1973 o i l c r i s i s . The r e a c t i o n s o f

the Japanese government and t h e D i e t are reviewed. Chapter

Three discusses t h e economic aspects of the r e a c t i o n . Some

economic figures as w e l l as major changes i n Japan's

economic structure a r e reviewed. Chapter Four discusses the

role of Japanese business i n the reaction. The r o l e s o f

major economic organizations and b u s i n e s s l e a d e r s a r e

reviewed from t h e p o l i t i c a l perspective. The management

efforts of companies a r e reviewed from t h e economic

perspective. The v a r i o u s points discussed i n these chapters

are summarized to support the conclusion i n Chapter Five. In

addition, there i s an a p p e n d i x i n which a Japanese view on

Canada's reaction t o t h e 1973 o i l c r i s i s i spresented.

 8

3. TABLES

TABLE 1-1

S T R U C T U R E OF ENERGY D E P E N D E N C E OF MAJOR INDUSTRIAL COUNTRIES

- 1978, % -
JAP. W.G. U.K. FRA. I T A . C A N . U . S . OECD

- D e p e n d e n c e on O i l 73.5 5 4 . 7 64.1 5 9 . 9 7 0 . 3 39.7 48.9,53.4

for Energy
-Dependence on 99.8 96.6 43.4 99.0 98.5 12.9 45.7 65.9
Imports f o r O i l
-Dependence on t h e 78.5 48.9 80.6 76.9 68.5 44.7 38.5 68.6
Middle East f o r
Oil Imports 1

- D e p e n d e n c e on t h e 57.6 25.8 16.5 45.6 47.3 2.3 18.6 24.1

Middle East f o r
Energy

Source: J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Keizai,

Hokoku, 1980 (Tokyo: Economic P l a n n i n g A g e n c y , 1980) p. 210;
OECD, Energy Balance of OECD Count ri es , 1 9 7 8 .

Note:
1
Figures i n 1977..

1. J A P . = J a p a n , W.G.=West G e r m a n y , U . K . = U n i t e d K i n g d o m ,
F R A . = F r a n c e , I T A . = I t a l y , CAN.=Canada, U . S . = U n i t e d S t a t e s ,
OECD=The a v e r a g e o f OECD c o u n t r i e s .
 9

TABLE 1-2

A B A S I C CONCEPT

IMPACT
i
P O L I T I C A L SYSTEM
ECONOMIC S T R U C T U R E
BUSINESS ATTITUDE
i
RESULT

AN A P P L I C A T I O N TO
J A P A N ' S R E A C T I O N TO THE 1 9 7 3 O I L C R I S I S

OIL CRISIS
i
P O L I T I C A L SYSTEM
ECONOMIC S T R U C T U R E
BUSINESS ATTITUDE
i
NATION-WIDE EFFORTS
i
THE C O M P E T I T I V E POWER OF INDUSTRY INCREASED
 10

TABLE 1-3

SOME A S P E C T S OF J A P A N ' S R E A C T I O N TO THE 1973 OIL CRISIS

SITUATIONS POLICIES

S c a r c i t y i n Domestic Energy
Resources
i
Dependence on Foreign Decrease of V u l n e r a b i l i t y by
Supplies E f f i c i e n t Use of I m p o r t e d
Resources
OIL CRISIS
I
Higher Vulnerability N a t i o n - w i d e E f f o r t s on
-Energy Conservation
-Development of A l t e r n a t i v e
Energy Sources
- I n c r e a s e of P r o d u c t i v i t y

Increased Competitive Power* J

of I n d u s t r y

TRADE FRICTION
 CHAPTER TWO

THE P O L I T I C A L A S P E C T S OF JAPAN'S REACTION

TO THE 1973 OIL CRISIS

The purpose of this chapter i s to review the political

aspects of Japan's reaction to the 1973 o i lcrisis. As noted

in Chapter One, i t i s sometimes argued that the economic

friction between Japan and other industrialized countries is

a result of Japan's relative success in recovering from the

oil crisis i n the 1970's. On the o t h e r hand, the secret of

Japan's economic success after World War I I has been

explained by some W e s t e r n scholars utilizing the concept of

"Japan Inc." 1 1
According to this concept, the Japanese

government takes the initiative to establish national goals

and the business sector cooperates with the government in

accomplishing them. There a r e , h o w e v e r , many a r g u m e n t s as to

whether the government has i n fact taken such a role. 1 2

1 1
N o b u y o s h i N a m i k i p o i n t s o u t t h a t t h e 1973 o i l c r i s i s
r e n d e r e d the usage of the c o n c e p t "Japan I n c . "
"out-of-date". Nobuyoshi Namiki, '"Japan, Inc.': R e a l i t y or
F a c a d e ? " i n P o l i t i c s and Economics in Contemporary Japan,
e d . Hyoe M u r a k a m i & J o h a n n e s H i r s c h m e r ( T o k y o : The J a p a n
C u l t u r e I n s t i t u t e , 1979) p. 111.
1 2
B e c a u s e of the i n c r e a s e i n the t r a d e imbalance between the
U n i t e d S t a t e s a n d J a p a n , some A m e r i c a n s b e g a n c r i t i c i s i n g
Japanese i n d u s t r i a l p o l i c y . For i n s t a n c e , a t the Japan-U.S.
Businessmen's Conference h e l d a t Hakone, Japan, i n J u l y
1 9 8 2 , U.S. d e l e g a t e s p o i n t e d o u t t h a t t h e J a p a n e s e
government s u p p o r t e d s e l e c t e d i n d u s t r i e s and p r o t e c t e d them
a g a i n s t f o r e i g n c o m p e t i t i o n . The K e i d a n r e n , J a p a n F e d e r a t i p n
of E c o n o m i c O r g a n i z a t i o n s , r e s p o n d e d t o s u c h c r i t i c i s m by
p r e s e n t i n g a paper e n t i t l e d " F o r c e of Market S t r o n g e r Than

11
 12

The 1973 o i lcrisis was a major challenge t o the

political and economic s y s t e m under which Japan had

accomplished substantial economic growth. In t h e p r o c e s s of

responding to that challenge, the Japanese government showed

what i t was able t o do under the e x i s t i n g political system.

Therefore, a review of Japan's reaction to the c r i s i s sheds

some l i g h t on t h e q u e s t i o n o f how much t h e Japanese

government a c t u a l l y contributed t o t h e economic development

of Japan.

This chapter consists of t h r e e sections. In t h e first

section, the p o l i t i c a l situation of Japan around the time of

the crisis i s r e v i e w e d . The basic structure of the Japanese

government i s also explained. In t h e second s e c t i o n , the

major actions t a k e n by t h e C a b i n e t and the D i e t are

reviewed. In t h e t h i r d section, the c h a r a c t e r i s t i c s of the

political a c t i o n s are i n v e s t i g a t e d . Special attention is

paid t o the q u e s t i o n o f how effectively the Japanese

political s y s t e m worked i n responding t o the crisis.

1 2
( c o n t ' d ) Any ' T a r g e t i n g ' P o l i c y " , i n w h i c h t h e K e i d a n r e n
p o i n t e d o u t t h a t some o f t h e c r i t i c i s m s stemmed f r o m a wrong
p e r c e p t i o n o f "Japan I n c . " K e i d a n r e n , " F o r c e of M a r k e t
S t r o n g e r Than Any ' T a r g e t i n g ' P o l i c y " , KKC Brief No.8
( T o k y o : K e i z a i Koho C e n t r e , June 1 9 8 3 ) .
 1

1. THE J A P A N E S E GOVERNMENT S Y S T E M AND THE P O L I T I C A L

SITUATION I N THE E A R L Y 1970'S

(1) The B a s i c Structure of the Government 1 3

The government of Japan consists of three independent

powers: legislative, administrative a n d j u d i c i a r y . The

legislative power i srepresented by t h e D i e t . The r o l e o f

the Diet i sdefined by t h e c o n s t i t u t i o n a s f o l l o w s :

A r t i c l e 4 1 : T h e D i e t s h a l l be t h e h i g h e s t o r g a n o f
s t a t e power, a n d s h a l l be t h e s o l e law-making organ
of t h e S t a t e . 1 f t

The constitution defines the various powers o f t h e D i e t ,

which include t h e powers t o d e s i g n a t e t h e prime minister, 1 5

to pass laws, 1 6
t o approve the budget, 1 7
t o approve

treaties, 1 8
t o conduct trials o f impeachment against

judges, 1 9
a n d t o amend t h e c o n s t i t u t i o n . 2 0

The administrative power i s t h e r e s p o n s i b l i t y o ft h e

Cabinet. The C a b i n e t c o n s i s t s of t h e prime minister and

other ministers of state and i sc o l l e c t i v e l y responsible to

the Diet i n the exercise of i t sa d m i n i s t r a t i v e power. The

functions of the Cabinet, 2 1

which arealso defined by t h e

1 3
The description i n this subsection i s based on Nippon
S t e e l C o r p o r a t i o n , Nippon The Land and Its People (Tokyo:
G a k u s e i s h a P u b l i s h i n g Co. L t d . , 1982), pp. 54-57.
1
" T h e C o n s t i t u t i o n o f J a p a n ( P r o m u l g a t e d o n N o v e m b e r 3,
1 9 4 6 ) , A r t i c l e 41 T h e E n g l i s h v e r s i o n o f t h e C o n s t i t u t i o n i
q u o t e d from J a p a n , S e c r e t a r i a t , House o f R e p r e s e n t a t i v e s ,
The National Diet of Japan - The Constitution of Japan, The
Diet Law, The Rules of the House of Representative (Tokyo:
S e c r e t a r i a t , House o f R e p r e s e n t a t i v e s , 1982)
1 5
T h e C o n s t i t u t i o n o f J a p a n , A r t i c l e 67, i b i d . , p. 17.
1 6
, A r t i c l e 59, i b i d . , p. 15.
1 7
, A r t i c l e 60, i b i d . , pp. 15-16.
1 8
, A r t i c l e 6 1 , i b i d . , p. 16.
1 9
, A r t i c l e 64, ibid.
2 0
, A r t i c l e 96, i b i d . , p. 23.
2 1
The function of the Cabinet i sdefined i n Chapter Five of
 14

constitution, include administering laws, managing foreign

affairs, concluding treaties, proposing the budget, and

enacting cabinet orders. The functions of the Cabinet are

divided among m i n i s t e r s o f s t a t e h e a d i n g twelve ministries

and major governmental agencies.

The judiciary c o n s i s t s o f t h e Supreme C o u r t and such

inferior courts as the h i g h courts, the d i s t r i c t courts, the

family courts, a n d t h e summary c o u r t s . A l ljudges a r e

independent i n the exercise of t h e i r conscience and a r e

bound only by t h e c o n s t i t u t i o n a n d t h e l a w s . The C h i e f Judge

of t h e Supreme C o u r t i s designated by t h e C a b i n e t and

approved by t h e Emperor. A l l o t h e r judges are appointed by

the Cabinet. I t i s w i t h i n t h e power of the courts t o r u l e on

the constitutionality of any and a l l laws and orders.

(2) The P o l i t i c a l Situation o f Japan i n the Early

1970's

A. The Diet

As shown i n Table 2-1, u n t i l the early 1970's, t h e

Liberal Democratic Party (LDP) had m a i n t a i n e d a stable

majority under the strong l e a d e r s h i p of Prime M i n i s t e r Sato,

who maintained h i s p o s i t i o n f o r three terms, from 1964 t o

1972. The P r i m e M i n i s t e r r e a c h e d an agreement with U.S.

President Nixon t o have Okinawa returned from the United

States t o J a p a n , a n d i t was the success of t h i s agreement

that contributed to the increase i n the seats o f t h e LDP i n

2 1
(cont'd) t h e C o n s t i t u t i o n . Ibid., pp. 16-19.
 15

the thirty-second election o f t h e House o f R e p r e s e n t a t i v e s

held on December 2, 1969. 2 2

However, i ti sc l e a r from t h e t a b l e that t h e LDP's

majority gradually decreased towards the middle oft h e

1 9 7 0 ' s . On t h e o t h e r hand, the seats o f t h e Japan Socialist

Party (JSP) and t h e Japan Communist P a r t y (JCP) gradually

increased. P r i m e M i n i s t e r T a n a k a , who s u c c e e d e d Sato on J u l y

7, 1972 23
decided t o d i s s o l v e t h e House o f R e p r e s e n t a t i v e s

on November 30, 1972. I n t h e f o l l o w i n g election, t h e LDP,

occupying only 271 s e a t s , fell t o the lowest number since

the establishment of t h e party i n 1 9 5 5 . On t h e o t h e r hand,

the JCP increased i t s seats from 14 t o 3 8 . T h e J S P a l s o

increased i t s seats from 87 t o 1 1 8 . T h i s result reflected

the attitude o f v o t e r s who w e r e tired of the long dominance

of t h e LDP.

As far as the s i t u a t i o n of the Diet was c o n c e r n e d , the

dominance o f t h e LDP h a d been weakened just before t h e 1973

oil crisis. In other words, the situation i n the Diet

provided the opposition parties with a position to criticize

the policies of the Cabinet more e f f e c t i v e l y than before.

B. The C a b i n e t

As noted i n the previous subsection, the early 1970's

was a transitional period i n Japanese p o l i t i c a l history.

Asahi
22
Nenkan, 1970 (Tokyo: Asahi Shinbunsha, 1970), p.
267.
2 3
T h e s i t u a t i o n of Tanaka's succession i s e x p l a i n e d i n
S h i g e r u H a y a s h i & K i y o a k i T s u j i , e d . , Nippon Naikaku
Shiroku, 6 v o l s . (Tokyo: D a i - i c h i H o k i , 1981), 6:216-237.
 16

Prime M i n i s t e r Sato hadmaintained h i s leadership f o r seven

and a half years, t h elongest term a f t e r W o r l d War I I .

On J u l y 5, 1972, t h e e l e c t i o n t o choose Sato's

successor as president o f t h e LDP was c a r r i e d out i n t h e

twenty-seventh ad-hoc meeting o f t h e LDP. T h e r e were four

candidates: Ohira, " 2

Fukuda, 2 5
Miki, 2 6
and Tanaka. 2 7
The

result of t h ef i r s t election was a s f o l l o w s :

Tanaka:156; Fukuda:150; O h i r a : l 0 l ; Miki:69

In the second election between only Tanaka and Fukuda,

2
" M a s a y o s h i O h i r a was b o r n i n t o a m i d d l e c l a s s f a r m i n g
f a m i l y i nKagawa p r e f e c t u r e i n 1 9 1 0 . He g r a d u a t e d f r o m T o k y o
U n i v e r s i t y o f Commerce a n d e n t e r e d t h e M i n i s t r y o f F i n a n c e
i n 1 9 3 6 . He a c t e d a s s e c r e t a r y t o t h e M i n i s t e r s o f F i n a n c e ,
T s u s h i m a a n d I k e d a , a n d w a s e l e c t e d a member o f t h e D i e t i n
1952. He b e l o n g e d t o t h e m a i n s t r e a m o f t h e L D P f o l l o w i n g
Y o s h i d a a n d I k e d a , a n d became t h e m a j o r s u p p o r t e r o f T a n a k a .
A f t e r holding major m i n i s t e r i a l p o s i t i o n s such as t h e
M i n i s t e r o f F i n a n c e a n d t h e M i n i s t e r o f F o r e i g n A f f a i r s , he
became p r i m e m i n i s t e r i n 1 9 7 8 . He d i e d i n t h e p o s i t i o n o f
p r i m e m i n i s t e r i n 1 9 8 0 . Ibid., p. 451.
2 5
T a k e o Fuk-uda w a s b o r n i n t o a r i c h f a m i l y i n Gumma
prefecture i n 1905. A f t e r g r a d u a t i n g from Tokyo U n i v e r s i t y
he e n t e r e d t h e M i n i s t r y o f F i n a n c e i n 1 9 2 9 . He w a s a n e l i t e
b u r e a u c r a t a c t i n g a s D i r e c t o r G e n e r a l o f t h e Budget Bureau
o f t h e m i n i s t r y . He w a s e l e c t e d a member o f t h e D i e t i n
1952. He b e l o n g e d t o t h e K i s h i f a c t i o n . He h e l d i m p o r t a n t
p o s t s such a s S e c r e t a r y G e n e r a l o f t h e LDP, M i n i s t e r o f
F i n a n c e a n d M i n i s t e r o f F o r e i g n A f f a i r s , a n d became p r i m e
m i n i s t e r i n 1 9 7 6 . Ibid., p. 424.
2 6
T a k e o M i k i was b o r n i n t o a f a r m i n g f a m i l y i n Tokushima
prefecture i n 1 9 0 7 . He g r a d u a t e d f r o m M e i j i U n i v e r s i t y . He
went t o t h e U n i t e d S t a t e s t o s t u d y b e f o r e h i s g r a d u a t i o n
f r o m u n i v e r s i t y . He w a s e l e c t e d a member o f t h e D i e t i n t h e
year o f h i s graduation. After acting as leader of several
p o l i t i c a l p a r t i e s , h e b e c a m e a m e m b e r o f t h e L D P . He
maintained h i s p o s i t i o n independent from the mainstream o f
the p a r t y . A f t e r h o l d i n g major m i n i s t e r i a l p o s i t i o n s he
b e c a m e p r i m e m i n i s t e r i n 1 9 7 4 . Ibid., pp. 365-366.
2 7
K a k u e i Tanaka was b o r n i n N i i g a t a p r e f e c t u r e i n 1918-
A f t e r g r a d u a t i n g from Chuo E n g i n e e r i n g S c h o o l , he
e s t a b l i s h e d a c o n s t r u c t i o n c o m p a n y . He w a s e l e c t e d a member
of t h e D i e t i n 1947. A f t e r a c t i n g a s M i n i s t e r o f P o s t s a n d
T e l e c o m m u n i c a t i o n s , S e c r e t a r y G e n e r a l o f t h e LDP, M i n i s t e r
of F i n a n c e a n d M i n i s t e r o f I n t e r n a t i o n a l T r a d e a n d I n d u s t r y ,
he b e c a m e p r i m e m i n i s t e r i n 1 9 7 2 . Ibid., p p . 216-228.
 17

Tanaka o b t a i n e d 282 v o t e s , a n d Fukuda o b t a i n e d 190 v o t e s . As

a result, Tanaka became p r e s i d e n t o f t h e LDP. On t h e

following day he was d e s i g n a t e d as t h e prime m i n i s t e r o f

J a p a n . He was 54 y e a r s o l d , and t h e youngest prime m i n i s t e r

in postwar Japanese p o l i t i c a l history.

In a d d i t i o n t o t h e f a c t t h a t Tanaka was t h e y o u n g e s t

p r i m e m i n i s t e r , he h a d o t h e r unique f e a t u r e s . T h e r e a r e two

types of p o l i t i c i a n s i n t h e LDP: a p a r t y p o l i t i c i a n and a

bureaucrat politician. 2 8
T a n a k a was a p a r t y politician

b e c a u s e he h a d no e x p e r i e n c e i n an e l i t e bureaucrat

position. He c o n t r a s t e d w i t h t h e three prime m i n i s t e r s

b e f o r e him, Kishi, Ikeda, and Sato. They were called

bureaucrat politicians because they had s t a r t e d their public

activities as e l i t e bureaucrats. 2 9
M o r e o v e r , Tanaka d i d n o t

2 8
This p o i n t i s e x p l a i n e d by B a e r w a l d a s f o l l o w s :
"In J a p a n e s e p a r l a n c e , t h i s i s r e f e r r e d t o a s
t h e d i v i s i o n between tojin ( p a r t y men) a n d kanryo
( b u r e a u c r a t s ) . I f Hatoyama e p i t o m i z e d t h e tojin by
h a v i n g been r e - e l e c t e d t h i r t e e n t i m e s t o t h e House
of R e p r e s e n t a t i v e s , Y o s h i d a was t h e a r c h t y p e o f t h e
e x - b u r e a u c r a t who came t o d o m i n a t e t h e LDP i n t h e
postwar p e r i o d . Indeed, n e a r l y a l l of t h e Prime
M i n i s t e r s have been drawn f r o m t h e l a t t e r r a n k s :
S h i d e h a r a K i j u r o ( F o r e i g n M i n i s t r y ) 1945-46, A s h i d a
H i t o s h i ( F o r e i g n M i n i s t r y ) 1948, Y o s h i d a S h i g e r u
( F o r e i g n M i n i s t r y ) 1946-47, 1948-54, K i s h i Nobusuke
(Commerce a n d I n d u s t r y M i n i s t r y ) 1957-60, I k e d a
H a y a t o ( F i n a n c e M i n i s t r y ) 1960-64, S a t o E i s a k u
( T r a n s p o r t a t i o n M i n i s t r y ) 1964-72. In t h i s c o n t e x t ,
the a c c e s s i o n o f Tanaka Kakuei t o t h e p r e s i d e n c y o f
t h e LDP a n d P r i m e M i n i s t e r s h i p i n t h e summer o f 1972
was a m i n o r r e v o l u t i o n " (H. H. B a e r w a l d , " P a r t i e s ,
F a c t i o n s , a n d t h e D i e t , " i n Politics and Economics
in Contemporary Japan, e d . Hyoe Murakami & J o h a n n e s
H i r s c h m e i r ' [ T o k y o : J a p a n C u l t u r e I n s t i t u t e , 1979],
P. 3 9 ) .
N o b u s u k e K i s h i was c h o s e n by t h e Emperor t o be M i n i s t e r o f
2 9

I n d u s t r y a n d Commerce i n a prewar C a b i n e t . The r e l a t i o n s h i p

between p a r t y p o l i t i c i a n s a n d b u r e a u c r a t s i s e x p l a i n e d by
Watanabe w i t h r e l a t i o n t o f a c t i o n s i n t h e LDP. T s u n e o
 18

graduate from a university. In Japanese society, where the

status of a person is largely affected by his level of

education, T a n a k a was a unique prime m i n i s t e r . 3 0

Based on

these qualities, he obtained the highest popularity of any

prime m i n i s t e r i n postwar political history. In fact, the

public opinion polls held i n August 1972 showed t h a t 62% of

the people surveyed supported Prime M i n i s t e r Tanaka.

Major members of the Tanaka Cabinet are shown in Table

2-2. As shown i n the table, major posts of the Cabinet were

occupied by the following people during the o i l crisis in

the late 1973.

Prime M i n i s t e r Kakuei Tanaka

Vice Prime M i n i s t e r Takeo M i k i
M i n i s t e r of Finance Takeo Fukuda
M i n i s t e r of F o r e i g n A f f a i r s Masayoshi Ohira
MITI M i n i s t e r Y a s u h i r o Nakasone
*MITI: M i n i s t r y of I n t e r n a t i o n a l Trade and I n d u s t r y .
* F u k u d a s u c c e e d e d K i i c h i A i c h i on November 25, 1973.

All the politicians listed here became p r i m e m i n i s t e r s o f

Japan i n the above order although Zenko S u z u k i became prime

minister after Ohira and before Nakasone. 3 1

I t can be said

that the Tanaka Cabinet c o n s i s t e d of the most influential

leaders of the LDP when i t faced the 1973 o i l crisis.

Although i t was t r u e t h a t Tanaka intended to e s t a b l i s h a

strong Cabinet t o overcome the political and economic

p r o b l e m s he faced, i t was a l s o t r u e t h a t he was obliged to

2 9
( c o n t ' d ) W a t a n a b e , Habatsu, (Tokyo: Kobundo, 1958).
3 0
H. H. B a e r w a l d u s e s t h e w o r d " r e v o l u t i o n " a s p r e v i o u s l y
quoted.
3
K i i c h i A i c h i d i e d o n N o v e m b e r 23 i n t h e p o s i t i o n o f
1

M i n i s t e r of F i n a n c e . Zenko S u z u k i became p r i m e m i n i s t e r as
O h i r a ' s s u c c e s s o r r a t h e r t h a n a s an i n f l u e n t i a l l e a d e r o f
t h e L D P . S h i g e r u H a y a s h i & K i y o a k i T s u j i , op. c i t . , p . 458.
 19

appoint major leaders of the party as ministers i n order to

build a consensus since each leader had influence through

his f a c t i o n i n the party.

2. THE A C T I O N S T A K E N BY THE GOVERNMENT F A C I N G THE CRISIS

Major actions taken by the government, the actions of

the Cabinet and the bureaucracy and those of the Diet, are

reviewed in this s e c t i o n . The actions of the government are

classified i n t o two areas. One was the external policy of

Japan designed to maintain a stable o i l supply from the

Middle East. The actions of the Cabinet resulted in the

declaration of i t s support for Arabian countries on November

22, 1973. The other was the domestic p o l i c y to control the

domestic o i l s i t u a t i o n i n order to deal with the o i l

shortage. The Diet passed two important laws. On this

subject, the Cabinet and the bureaucracy implemented several

administrative measures which were replaced by the measures

b a s e d on the two laws a f t e r they were p a s s e d by the Diet.

Following i s a more d e t a i l e d d i s c u s s i o n of these actions.

(1) The A c t i o n s T a k e n by the Cabinet

A. The External Policy

The o i l crisis in 1973 forced the Japanese government

to face a difficult s i t u a t i o n in which i t had to accommodate

 20

two differing prior ities--one political and the other

e c o n o m i c . As f a r as Japanese diplomacy was concerned, i t was

considered very important to maintain stable political

relations with the United S t a t e s . The Ministry of Foreign

Affairs was particularly concerned about this p o i n t when the

oil crisis occurred. Shinsaku Hogen, v i c e m i n i s t e r of the

Ministry of Foreign Affairs, expressed h i s views at a

meeting of the m i n i s t r y as follows:

I t i s i m p o r t a n t t o o b t a i n o i l , b u t we should
n o t f o r g e t t h e d i g n i t y o f J a p a n a s a n a t i o n . We
s h o u l d not ask f o r o i l p r o s t r a t i n g the d i g n i t y of
J a p a n a s a n a t i o n . We s h o u l d n o t a s k f o r o i l b y
p r o s t r a t i n g o u r s e l v e s o n t h e g r o u n d . We h a v e t o
e x a m i n e w h a t i s m o s t i m p o r t a n t . The o i l i n d u s t r y
m i g h t be s h a k e n b e c a u s e i t d e p e n d s on o i l . H o w e v e r ,
i t i s not the case w i t h the M i n i s t r y of F o r e i g n
Affairs.

We h a v e t o u n d e r s t a n d f i r s t w h e r e we p u r c h a s e
o i l . E v e n t h o u g h we p u r c h a s e m o s t o i l f r o m t h e
M i d d l e E a s t , we d o i t t h r o u g h O i l M a j o r s . J a p a n
d e p e n d s on them f o r 60% o f i t s o i l i m p o r t s . They
d e a l w i t h o i l not o n l y i n the M i d d l e E a s t but a l s o
i n o t h e r r e g i o n s . We s h o u l d n o t i g n o r e t h e f u n c t i o n
of the M a j o r s .

J a p a n e s e d i p l o m a t i c p o l i c y i s b a s e d on
c o o p e r a t i v e r e l a t i o n s w i t h the United S t a t e s .
Japanese trade cannot e x i s t without the U n i t e d
S t a t e s . I f we s u p p o r t A r a b i a n c o u n t r i e s b y v i o l a t i n g
p r o - U . S . p o l i c i e s , t h e s u p p l y o f o i l by t h e Majors
m i g h t be s t o p p e d , a n d J a p a n e s e e x p o r t s t o t h e U n i t e d
S t a t e s m i g h t a l s o be d a m a g e d . S u c h r e s u l t s w o u l d
h a v e a t r e m e n d o u s e f f e c t on J a p a n . I t i s i m p o r t a n t
to adopt the most r e a l i s t i c policy.

D i p l o m a c y s h o u l d be j u s t t o a l l p a r t i e s
c o n c e r n e d . R e s o l u t i o n 242 a d o p t e d b y t h e S e c u r i t y
C o u n c i l of the U n i t e d N a t i o n s i s w e l l
accommodated. 3 2
I t i s very important to emphasize
t h a t the r e s o l u t i o n i s v e r y r a t i o n a l and i t goes

3 2
T h e R e s o l u t i o n , w h i c h was a d o p t e d o n J u n e 6, 1967,
r e q u e s t e d b o t h A r a b i a n and I s r a e l i armies t o c e a s e f i r e .
Asahi Nenkan 1976 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 7 6 ) , p. 95.
 21

along with Japanese national policies. 3 3

On t h e o t h e r hand, theMinistry of International Trade

and Industry (MITI), which was i n c h a r g e of Japanese

industrial policy, took a pro-Arab stance considering the

situation of Japanese industry. 3 4

On N o v e m b e r 14, 1973,

Kogoro Uemura, Chairman of the Keidanren, 3 5

and three other

business leaders visited Prime Minister Tanaka who w a s g o i n g

to meet H e n r y Kissinger, U.S. S e c r e t a r y of State, on t h e

following day. The b u s i n e s s l e a d e r s stated their opinions as

follows:

We came t o u n d e r s t a n d t h a t t h e M a j o r s w i l l n o t
s u p p l y enough o i l t o J a p a n i ft h e s i t u a t i o n becomes
m o r e s e v e r e . Now t h e J a p a n e s e g o v e r n m e n t s h o u l d t a k e
a pro-Arab diplomatic stance i n order t o strengthen
i t s c o o p e r a t i v e r e l a t i o n s w i t h Arab c o u n t r i e s . I t
w i l l be a g o o d i d e a t o s e n d a s p e c i a l d e l e g a t e t o
the Arab c o u n t r i e s . 3 6

The business leaders also asked t h e prime minister to

3 3
K u n i o Y a n a g i d a , Ohkami ga Yatte Ki ta Hi ( T o k y o : B u n g e i
S h u n j u ) , p p . 65-66 (Summary t r a n s l a t i o n b y t h e a u t h o r ) .
3
"On N o v e m b e r 2 0 , 1973, M I T I M i n i s t e r N a k a s o n e r e q u e s t e d
r e p r e s e n t a t i v e s of t h e Majors i n Japan t o cooperate w i t h
Japan i n s u p p l y i n g o i l . The r e p r e s e n t a t i v e s p r o m i s e d t o
t r a n s m i t t h e message from Nakasone t o t h e h e a d q u a t e r s o f
e a c h c o m p a n y . Ni hon Keizai Shinbun, 21 N o v e m b e r , 1 9 7 3 .
3 5
T h e K e i d a n r e n i s e x p l a i n e d i n C h a p t e r T h r e e . The
F e d e r a t i o n h a d drawn t h e government's a t t e n t i o n t o t h e
r e s o u r c e i s s u e b e f o r e t h e 1973 o i l c r i s i s a s C a l d w e l l p o i n t s
out.
"More t h a n a y e a r b e f o r e t h e o i l shock o f O c t o b e r
1973, t h e K e i d a n r e n e n e r g y c o m m i t t e e , under t h e
l e a d e r s h i p o f S h o i c h i Matsune, c a l l e d f o r a
c o m p r e h e n s i v e r e v i s i o n o f J a p a n ' s e n e r g y p o l i c y . The
'Matsune P l a n ' c a l l e d f o r a more i n d e p e n d e n t f o r e i g n
o i l p o l i c y , i n c l u d i n g expanded p a r t i c i p a t i o n i n
M i d d l e E a s t economic development projects"
( M . C a l d w e l l , "The D i l e m m a s o f J a p a n ' s O i l
D e p e n d e n c y , " i n The Politics of Japan's Energy
Strategy, e d . R o n a l d A. M o r s e [ B e r k e l e y : I n s t i t u t e
of E a s t A s i a n S t u d i e s , U n i v e r s i t y o f C a l i f o r n i a ,
B e r k e l e y , 1981 ] , p . 6 8 ) .
3 6
K u n i o Y a n a g i d a , op. c i t . , p . 7 8 .
 22

moderate the application o f t h e A n t i - M o n o p o l y Law o f Japan

concerning cartels. 3 7

The m e e t i n g between Kissinger and Tanaka o n N o v e m b e r 15

had a strong impact on t h e d e c i s i o n made b y t h e J a p a n e s e

government on i t s basic diplomatic direction. I t was

reported that Kissinger explained that, i f Japan adopted a

pro-Arab p o l i c y , Jewish Americans would be i r r i t a t e d and the

U.S.-Japan relationship might be damaged. Tanaka explained

that the current situation would cause a decrease i n the o i l

supply t o Japan b y 5% o r 6%, a n d J a p a n e s e economic growth

would decrease from 10.7%, w h i c h h a d been e x p e c t e d , t o below

5%. Tanaka asked Kissinger whether the United States could

compensate f o r the o i l shortage i n Japan i f Japan followed

the U.S. s t r a t e g y . Kissinger answered that the United States

would n o t make such compensation. Tanaka replied that Japan

could not help adopting pro-Arab policies. 3 8

The pro-Arab policy o f t h e Tanaka C a b i n e t was f o r m a l l y

announced on November 22, 1973. The e s s e n c e of the policy

was as follows:

1. T h e J a p a n e s e g o v e r n m e n t h a s r e q u e s t e d t h e
establishment ofa peaceful situation i n the Middle
E a s t b y f u l f i l l i n g R e s o l u t i o n 242 o f t h e S e c u r i t y
C o u n c i l o f the U n i t e d N a t i o n s and supported t h e
R e s o l u t i o n o f t h e U n i t e d N a t i o n s G e n e r a l Assembly on
the autonomy o f P a l e s t i n i a n s .

2. T h e J a p a n e s e g o v e r n m e n t s u p p o r t s t h e i d e a t h a t
the f o l l o w i n g p r i n c i p l e s s h o u l d be f u l f i l l e d i n
order t osolve the conf-licts i n the Middle East.
(1) T h e o c c u p a t i o n o f l a n d b y m i l i t a r y p o w e r
s h a l l not be p e r m i t t e d .

3 7
Ibid. r p. 79.
3 e
Ibid., pp. 79-80.
 23

(2) The I s r a e l i army s h o u l d be w i t h d r a w n from

all the a r e a s i t o c c u p i e d d u r i n g the war i n 1967.
(3) The peace a n d o r d e r i n t h et e r r i t o r y s h o u l d
be guaranteed.
(4) The r i g h t s o f P a l e s t i n i a n s b a s e d on t h e
C h a r t e r o f t h e U n i t e d N a t i o n s s h o u l d be g u a r a n t e e d .

3. T h e J a p a n e s e g o v e r n m e n t r e q u e s t s I s r a e l t o f o l l o w
the p r i n c i p l e s s t a t e d above. The Japanese government
w i l l reconsider i t s I s r a e l i p o l i c y according t o any
s e r i o u s change i n t h e s i t u a t i o n . 3 9

Following the announcement, t h egovernment decided t o

send V i c e Prime M i n i s t e r M i k i t o several Arabian countries

on December 10. 4 0
On D e c e m b e r 2 5 , J a p a n was r e c o g n i z e d as a

friendly n a t i o n a t the O i l M i n i s t e r s Conference o f OAPEC. 4 1

The MITI Minister, Nakasone, v i s i t e d Arabian and European

countries from January 7 t o 18. 4 2

The main topics of

Nakasone's v i s i t were Japan's economic cooperation with

Middle East countries and o i l transactions c a r r i e d o u t by

the government. 4 3

39
Nihon Kei zai Shinbun, 22 N o v e m b e r , e v e n i n g e d i t i o n , 1973
(Summary t r a n s l a t i o n by t h e a u t h o r ) .
4 0
T h e e i g h t c o u n t r i e s are the U n i t e d Arab Emirates, Saudi
A r a b i a , E g y p t , K u w a i t , Q a t a r , S y r i a , I r a q a n d I r a n . Asahi
Shinbun, 10 D e c e m b e r , e v e n i n g e d i t i o n , 1 9 7 3 .
41
Asahi Shinbun, 26 D e c e m b e r , 1 9 7 3 .
4 2
N o t o n l y Nakasone b u t a l s o other m i n i s t e r i a l level
p o l i t i c i a n s v i s i t e d f o r e i g n c o u n t r i e s i n J a n u a r y 1974 a s
follows:
Prime M i n i s t e r Tanaka (Jan.7-17, South East A s i a )
V i c e Prime M i n i s t e r M i k i (Jan.7-14, the U n i t e d
States)
Finance M i n i s t e r Fukuda (Jan.14-19, I t a l y )
Foreign A f f a i r s Minister Ohira
(Jan.2-6, China)
Kosaka (Special delegate) (Jan.15-Feb.2, Eight Arabian
countries)
K u n i o Y a n a g i d a , op. c i t . , pp. 257-258.
**Ibid., pp. 257-272.
 24

B. The Domestic P o l i c y

The domestic p o l i c y implemented by t h e Tanaka Cabinet

concentrated on t h e s t a b i l i z a t i o n of o i l supply and t h e

control o f o i l d e m a n d . On N o v e m b e r 16, 1973, t h e C a b i n e t

established t h eUrgent Policy Committee, and t h e prime

minister became c h a i r m a n of t h e committee."* In addition,

the Cabinet completed t h e "Urgent O i lPolicy Text" a t the

ministerial level meeting held o n t h e same d a y . T h e m a j o r

points o f t h e "Urgent O i lPolicy" a r eas follows:

1. B a s i c p r i n c i p l e s :
The g o v e r n m e n t w i l l i m p l e m e n t a n e n e r g y
c o n s e r v a t i o n campaign, a d m i n i s t r a t i v e guidance, and
u r g e n t l e g a l p r e p a r a t i o n t o make a n a t i o n - w i d e
e f f o r t t o deal with thec r i s i s through cooperation
among t h e g o v e r n m e n t , b u s i n e s s a n d i n d i v i d u a l s . The
government w i l l a l s o implement p o l i c i e s t o reduce
a g g r e g a t e demand t o s e c u r e e n e r g y s u p p l y .
2. T h e i m p l e m e n t a t i o n o f a c o n s e r v a t i o n c a m p a i g n :
C o n s i d e r i n g t h e f a c t t h a t o t h e r c o u n t r i e s have
a l r e a d y adopted energy c o n s e r v a t i o n measures, t h e
g o v e r n m e n t w i l l m a k e a n a g r e e m e n t o n i t s own o i l
c o n s e r v a t i o n measures and w i l l urge b u s i n e s s as w e l l
a s i n d i v i d u a l s t o j o i n a n a t i o n - w i d e movement t o
conserve energy resources, p a r t i c u l a r l y o i l .
3. T h e i m p l e m e n t a t i o n o f a d m i n i s t r a t i v e g u i d a n c e :
(1) A d m i n i s t r a t i v e g u i d a n c e w i l l b e i m p l e m e n t e d
from November 20. The c o n s e r v a t i o n r a t e o f o i l a n d
e l e c t r i c i t y by c o m p a n i e s w i l l be 10%.
(2) S p e c i a l g u i d e l i n e s w i l l be i m p l e m e n t e d f o r
l a r g e - s c a l e u s e r s o f e l e c t r i c i t y who c o n s u m e m o r e
t h a n 3,000kw.

""The f o l l o w i n g m i n i s t e r s b e c a m e v i c e - c h a i r m e n o f t h e
c o m m i t t e e a n d o t h e r m i n i s t e r s o f s t a t e became members o f t h e
committee.
V i c e - C h a i rmen
-Secretary General of Cabinet Secretariat
- M i n i s t e r f o r I n t e r n a t i o n a l Trade and Industry
-Minister f o r Finance
- M i n i s t e r o f S t a t e f o r Economic P l a n n i n g Agency
J a p a n , A g e n c y o f N a t u r a l R e s o u r c e a n d E n e r g y , Sekiyu Kiki to
Jukyu Taisaku (Tokyo: S e k i y u T s u s h i n s h a , 1974), pp. 22-24.
 25

(3) The government w i l l pay s p e c i a l

c o n s i d e r a t i o n t o the supply of o i l t o i n d i v i d u a l
homes, t h e a g r i c u l t u r a l s e c t o r , t h e t r a n s p o r t a t i o n
s e c t o r , h o s p i t a l s , and s m a l l and medium s i z e d
companies.
4. The p r e p a r a t i o n o f u r g e n t l a w s :
U r g e n t laws w i l l be p r o p o s e d t o t h e c o m i n g D i e t
session.
5. The r e d u c t i o n o f a g g r e g a t e demand and t h e
s t a b i l i z a t i o n of p r i c e s :
The government w i l l s t r e n g t h e n t h e a p p l i c a t i o n
of t h e law p r o h i b i t i n g s u p p l y c o n t r o l by c o m p a n i e s .
The government w i l l a l s o implement p o l i c i e s t o
r e d u c e a g g r e g a t e demand.
6. E f f o r t s t o s e c u r e e n e r g y s u p p l y :
The government w i l l make e f f o r t s t o s e c u r e o i l
s u p p l y and d e v e l o p a l t e r n a t i v e e n e r g y s o u r c e s . " 5

The text urged t h e government t o implement administrative

guidance" 6
a s a means o f d e c r e a s i n g the consumption of

energy, including o i l , to start a n a t i o n - w i d e campaign f o r

energy c o n s e r v a t i o n , and t o p r e p a r e legislative arrangements

to secure the s t a b i l i t y of n a t i o n a l life and t h e n a t i o n a l

economy. The t e x t also urged t h e government to strengthen

" Ibid.,
5
pp. 20-22 (Summary t r a n s l a t i o n by t h e a u t h o r ) .
" " A d m i n i s t r a t i v e g u i d a n c e " i s one o f t h e key t e r m s i n
6

u n d e r s t a n d i n g the c h a r a c t e r i s t i c s of Japanese i n d u s t r i a l
p o l i c y . The a d m i n i s t r a t i v e g u i d a n c e n o t e d i n t h i s s e c t i o n i s
b a s e d on t h e d e c i s i o n o f t h e C a b i n e t . A d m i n i s t r a t i v e
guidance i n Japan i s g e n e r a l l y e x p l a i n e d as f o l l o w s :
" E s s e n t i a l l y , a d m i n i s t r a t i v e guidance involves the
use o f i n f l u e n c e , a d v i c e , and p e r s u a s i o n t o c a u s e
f i r m s o r i n d i v i d u a l s t o behave i n p a r t i c u l a r ways
t h a t t h e government b e l i e v e s a r e d e s i r a b l e . The
p e r s u a s i o n o f c o u r s e i s e x e r t e d and t h e a d v i c e given
by t h e p u b l i c o f f i c i a l s who may have t h e power t o
provide—or w i t h h o l d — l o a n s , grants, subsidies,
l i c e n s e s , t a x c o n c e s s i o n s , government c o n t r a c t s ,
p e r m i s s i o n s t o import, f o r e i g n exchange, a p p r o v a l of
c a r t e l a r r a n g e m e n t s , and o t h e r d e s i r a b l e ( o r
u n d e s i r a b l e ) outcomes, b o t h now and o v e r t h e
i n d e f i n i t e f u t u r e " (Hugh T. P a t r i c k & H e n r y
R o s o v s k y , Asia's New Giant [ W a s h i n g t o n : The
B r o o k i n g s I n s t i t u t i o n , 1976], pp. 2 3 6 - 2 3 7 ) .
 26

the p o l i c i e s of c o n t r o l l i n g aggregate demand and prices, and

t o a d o p t a l l p o s s i b l e means t o m a i n t a i n the o i l supply to

Japan.

On November 19, 1973, the meeting of v i c e ministers

completed the "Text of A d m i n i s t r a t i v e G u i d a n c e for

Conservation of O i l and Electricity i n the P r i v a t e

Sector."" 7
On the f o l l o w i n g day the government started

carrying out i t s a d m i n i s t r a t i v e guidance on the o i l

consumption of l a r g e companies i n such industries as steel,

automobiles, heavy and home e l e c t r i c a l appliances,

petrochemicals, auto-tires, synthetic fibers, aluminum,

non-ferrous metals (except f o r aluminum), p l a t e g l a s s , and

pulp and paper." 8

The government a l s o i m p l e m e n t e d i t s

administrative guidance on the electricity consumption of

users who c o n t r a c t e d t o use more t h a n 3,000kw.

On December 21 two oil-related laws were p a s s e d by the

D i e t . The l a w s were t h e P e t r o l e u m Supply and Demand

Normalization Law ( h e r e a f t e r t h e PSDN Law) and the Emergency

M e a s u r e s Law f o r the Stabilization of the People's

4 7
T h i s t e x t c o n s i s t s of the f o l l o w i n g items:
1. C o n s e r v a t i o n of g a s o l i n e by d e c r e a s i n g t h e u s a g e of
private cars
2. C o n s e r v a t i o n of o i l by d e c r e a s i n g t h e u s a g e of
commercial v e h i c l e s
3. C o n s e r v a t i o n of e l e c t r i c i t y by d e c r e a s i n g o f f i c e
hours
4. C o n s e r v a t i o n of e l e c t r i c i t y by d e c r e a s i n g v a r i o u s
u s a g e s s u c h as t e l e v i s i o n s and c o m m e r c i a l i l l u m i n a t i o n s .
J a p a n , A g e n c y of N a t u r a l R e s o u r c e s and E n e r g y , op. c i t . , pp.
26-27.
a 8
S u c h i n d u s t r i e s a s aluminum and s y n t h e t i c f i b e r s were
d e f i n e d as slump r i d d e n i n d u s t r i e s by t h e law i n 1978. T h i s
i s one a s p e c t of t h e o i l c r i s i s w h i c h c h a n g e d t h e i n d u s t r i a l
s t r u c t u r e o f J a p a n . T o s h i m a s a T s u r u t a , Sengo Nihon no Sangyo
Seisaku ( T o k y o : N i h o n K e i z a i S h i n b u n s h a , 1982), pp. 253-255.
 27

Livelihood ( h e r e a f t e r t h e EM L a w ) . T h e PSDN L a w , w h i c h was

prepared by M I T I , contained articles designed to stabilize

the supply a n d demand o f o i l by c o n t r o l l i n g activities of

oil related industries." 9

T h e EM L a w , w h i c h was p r e p a r e d by

the Economic Planning Agency, concentrated on t h e

stabilization of the p r i c e s of basic materials including

o i l . 5 0

On D e c e m b e r 23, 1973, t h e P e o p l e ' s L i v e l i h o o d

Stabilization Committee decided on " U r g e n t Policies f o r the

Present Situation." 5 1
Following t h e d e c i s i o n made by t h e

committee, the consumption o f o i l was t o be d e c r e a s e d by 2 0 %

during January 1 9 7 4 . On t h e o t h e r hand, t h e OAPEC O i l

Ministers Conference decided to abolish the restriction of

oil exports t o Japan on December 2 5 , a n d t h e o i l demand

control was moderated.

At the meeting of the People's L i v e l i h o o d Committee on

January 11, 1974, t h e c o n s e r v a t i o n rate was s e t a t 1 5 % f r o m

January 16. W i t h regard to the conservation of o i l and

electricity after February, the a d m i n i s t r a t i v e guidance was

replaced by t h e l e g a l procedure based o n t h e PSDN L a w . I n

addition t o the a d m i n i s t r a t i v e guidance and legal

arrangements, t h e government e s t a b l i s h e d other guidelines

including the conservation of g a s o l i n e by voluntary

restraint on d r i v i n g , the conservation of o i l by commercial

vehicles, and the conservation of e l e c t r i c i t y by shortening

" E v e r y a r t i c l e of the law i s explained

9
i n Japan, Agency o f
N a t u r a l R e s o u r c e s a n d E n e r g y , op. cit., pp. 91-197.
5 0
I b i d . , pp. 268-315.
5
Ubi d. , p p . 3 1 - 2 4 .
 28

office hours. 5 2

(2) The A c t i o n s Taken by t h e D i e t

The seventy-second ordinary session of the Diet began

on December 1, 1 9 7 3 , a b o u t one a n d a h a l f months a f t e r t h e

oil crisis occurred. As noted i n the previous subsection,

two o i l r e l a t e d laws were p a s s e d by the Diet o n December 2 1 .

The p r o p o s a l o f t h e PSDN L a w w a s e x p l a i n e d by t h e MITI

minister and t h e MITI o f f i c i a l s on December 8. V a r i o u s

people concerned were invited t othe hearings held from

December 12 t o 1 7 , 1 9 7 3 . T h e p r o p o s a l was s u b s e q u e n t l y

adopted by t h e House o f R e p r e s e n t a t i v e s with a r e s o l u t i o n on

December 17. 5 3
The p r o p o s a l was e x p l a i n e d i n t h e House o f

Councillors on December 14. T h e h e a r i n g s were h e l d on

December 18 f o l l o w e d by d i s c u s s i o n s starting o n December 19.

The p r o p o s a l was p a s s e d by t h e House o f C o u n c i l l o r s w i t h a

resolution on December 2 1 . " Both

5
laws were p r o m u l g a t e d and

enforced on December 22, 1973.

The PSDN L a w h a d t h r e e purposes. 5 5

The f i r s t was t o

secure the appropriate supply level of o i l . Therefore, the

law s e t out that t h e MITI m i n i s t e r should determine the o i l

5 2
I b i d . , pp. 17-18.
5 3
T h e R e s o l u t i o n adopted by the Committee o f I n d u s t r y and
Commerce o f t h e House o f R e p r e s e n t a t i v e s m a i n l y requested
the government t o implement t h e law f a i r l y , t o r e p o r t t o t h e
D i e t when t h e q u o t a s y s t e m was a d o p t e d , t o c o n s i d e r t h e
d i s c u s s i o n o f t h e a d v i s o r y committee, and t or e s t r a i n o i l
p r i c e i n c r e a s e s . Ibid., pp. 50-51.
5
"The R e s o l u t i o n adopted by t h e Committee o f I n d u s t r y and
Commerce o f t h e House o f C o u n c i l l o r s e m p h a s i z e d t h e
importance o f i n t e r n a t i o n a l cooperation t o u t i l i z e o i l
r e s o u r c e s . Ibid., p. 54.
S 5
I b i d . , pp. 49-50.
 29

supply t a r g e t , and o i l producers and d e a l e r s should report

their production and s a l e s plans t o MITI. I f necessary, the

MITI m i n i s t e r was a b l e t osuggest that they change their

plans. 5 6
I n a d d i t i o n , t h e MITI minister was a b l e t o ask

large-scale o i l dealers t o keep s t o c k s ort os e l l , andt o

guide the association ofpetroleum dealers t osecure the

national o i l supply. 5 7
The second purpose was i n t e n d e d t o

decrease o i l consumption. I t was s p e c i f i e d that the

ministers concerned would c o n t r o l o i l consumption o f

large-scale consumers. 5 8
Even small-scale consumers hadt o

follow the o i l conservation target s e t by MITI according t o

the law. 5 9
Thet h i r d purpose o f t h e l a w was t o a l l o w MITI t o

implement the distribution quota system o f o i l when i t was

necessary. 6 0

Since t h e PSDN L a w h a d s e r i o u s impacts on t h e supply

and demand o f o i l , p e o p l e from the p a r t i e s concerned stated

their opinions a tthe hearing session of the Diet from

December 12 t o 1 7 . T h e f o l l o w i n g a r e some o f t h e opinions

stated a tthe session. 6 1

T h e L P G a s i n d u s t r y h a s s u p p l i e d g a s t o 18
m i l l i o n houses a l l over Japan even i n t h e
c o u n t r y s i d e s i n c e i t w a s e s t a b l i s e d 20 y e a r s a g o . .
. . There a r e 47,000 d e a l e r s o f w h i c h 90% a r e s m a l l
s c a l e d e a l e r s . . . . We a r e a f r a i d t h a t , i f t h e
d i s t r i b u t i o n quota system i s adopted, 90% o f the
47,000 d e a l e r s w i l l f a c e t h e r i s k o f b a n k r u p t c y
u n l e s s some t a x a t i o n a n d f i n a n c i a l b e n e f i t s a r e

5 6
P S D N L a w , A r t i c l e 6, ibid.,
The pp. 219-227.
5 7
, A r t i c l e 1 0 , ibid., pp. 222-223.
5 8
, A r t i c l e 7, ibid., p.221.
5 9
, A r t i c l e 7, ibid., pp. 221-222.
6 0
, A r t i c l e 1 2 , ibid., p. 223.
T h e s e a r e some o f t h e o p i n i o n s q u o t e d f r o m ibid.,
6 1
pp.
54-75 (Summary t r a n s l a t i o n b y t h e a u t h o r ) .
 30

provided. ... We h o p e t h a t t h e g o v e r n m e n t w i l l
e x p l a i n t o p e o p l e t h e p r e s e n t s i t u a t i o n so t h a t we
c a n p e r s u a d e o u r c u s t o m e r s t o u s e LP Gas efficiently
for a long time (Uchida, Vice Chairman, Federation
o f LP Gas Industry).

We h o p e t h e D i e t w i l l p a y e n o u g h a t t e n t i o n t o
the f a c t t h a t the a g r i c u l t u r a l s e c t o r i s engaged i n
p r o d u c i n g foods, which are b a s i c needs t o us, and
t h a t t h e s e c t o r c o n s i s t s of v e r y s m a l l - s c a l e f a r m e r s
(Kasahara, Managing D i r e c t o r , Farmers' A s s o c i a t i o n ) .

We h o p e t h a t t h e l a w w i l l be p a s s e d a s s o o n a s
p o s s i b l e (Matsumura, Chairman, N a t i o n a l O i l Dealers'
Association).

S i n c e the p u r p o s e of the law i s t o accommodate

t h e s u p p l y and demand of o i l u n d e r t h e o i l s h o r t a g e
s i t u a t i o n , t h e government s h o u l d c o n t r o l i t s demands
to decrease a f t e r c o n s i d e r i n g the s u p p l i e r s '
s i t u a t i o n . T h e r e s h o u l d be b a l a n c e a m o n g p e t r o l e u m
p r o d u c t s made f r o m c r u d e o i l . I n o r d e r t o increase
t h e p r o d u c t i o n o f h e a t i n g o i l , we h a v e t o d e c r e a s e
t h a t of heavy o i l , f o r i n s t a n c e . . . . We h o p e t h e
government w i l l c o n s i d e r economic e f f i c i e n c y i n
c a r r y i n g out any t y p e of c o n t r o l ( M i t s u d a , Chairman,
P e t r o l e u m A s s o c i a t i o n of J a p a n ) .

We u n d e r s t a n d t h e n e c e s s i t y o f t h e law.
However, i t i s not adequate to c o n c e n t r a t e on
c o n t r o l l i n g t h e c o n s u m p t i o n of l a r g e u s e r s . As f a r
a s t h e s t e e l i n d u s t r y i s c o n c e r n e d , a 10% d e c r e a s e
i n o i l c o n s u m p t i o n l e a d s t o a 12% d e c r e a s e i n s t e e l
p r o d u c t i o n , and a 20% d e c r e a s e i n o i l l e a d s t o a 30%
d e c r e a s e i n s t e e l (Okumura, S e n i o r M a n a g i n g
D i r e c t o r , A s s o c i a t i o n of S t e e l I n d u s t r y ) .

The f i r s t c a u s e o f a l a r g e o i l c o n s u m p t i o n i s
t h e u s a g e o f m o t o r v e h i c l e s . I f we u s e t r a i n s
i n s t e a d of c a r s , l a r g e amounts of o i l w i l l be
c o n s e r v e d . The s e c o n d c a u s e i s t h e u s a g e o f
c h e m i c a l s . F o r i n s t a n c e , we u s e m u c h d e t e r g e n t w h i c h
i s a l s o a cause of e n v i r o n m e n t a l p o l l u t i o n .
Therefore, the Agency of E n v i r o n m e n t s h o u l d p r o h i b i t
t h e use of c h e m i c a l d e t e r g e n t . The t h i r d c a u s e i s
r e l a t e d t o c o n s u m p t i o n h a b i t s . We c o n s u m e a l o t o f
d u r a b l e c o n s u m p t i o n g o o d s . T h i s h a b i t c a u s e s an
i n c r e a s e i n t h e c o n s u m p t i o n of s t e e l and plastics.
I f we s u c c e e d i n t h e c o n s e r v a t i o n o f t h e s e products,
I t h i n k , we d o n o t n e e d s t r i c t c o n t r o l s b y the
government ( R i k i i s h i , P r o f e s s o r , Hosei U n i v e r s i t y ) .

We a r e u s i n g n a p h t h a a s a m a t e r i a l t o p r o d u c e
p e o p l e ' s n e c e s s i t i e s . S i n c e some o t h e r i n d u s t r i e s
 31

a r e c o n s u m i n g n a p h t h a a s f u e l , we h o p e t h a t t h e
g o v e r n m e n t w i l l p u t p r i o r i t y on t h e u s e o f n a p h t h a
a s a m a t e r i a l . We a l s o h o p e t h a t t h e g o v e r n m e n t w i l l
b r i n g about a decrease i n t h e consumption of
g a s o l i n e f o r l e i s u r e purposes t o secure the use of
o i l f o r i n d u s t r i a l purposes ( T o r i i , Chairman, Japan
Chemical Industry Association).

I t m i g h t be n e c e s s a r y t o i m p l e m e n t a s t r i c t
c o n t r o l on o i l u n t i l t h e o i l s h o r t a g e p r o b l e m i s
s o l v e d . . . . Since t h e law does not r e f e r t o t h e
p r i c e o f o i l , we a r e a f r a i d t h a t c o n t r o l o n t h e o i l
s u p p l y may c a u s e t h e c a r t e l t o i n c r e a s e o i l p r i c e s
(Haruno, R e p r e s e n t a t i v e of Consumers' A s s o c i a t i o n ) .

Transportation by t r u c k s o f t e n c o n t i n u e s d u r i n g
the n i g h t . T h e r e f o r e , even though MITI M i n i s t e r
Nakasone t o l d g a s o l i n e s e r v i c e s t a t i o n s not t o
o p e r a t e a t n i g h t a n d o n S u n d a y s a n d h o l i d a y s , we
h o p e t h a t some s e r v i c e s t a t i o n s w i l l o p e r a t e a t
n i g h t a n d on S u n d a y s a n d h o l i d a y s (Muto, S e n i o r
Managing D i r e c t o r , Japan Truck A s s o c i a t i o n ) .

We h o p e t h a t t h e g o v e r n m e n t w i l l p a y s p e c i a l
a t t e n t i o n t o the domestic sea l i n e s because the
demand f o r t h e i r u s e i n c r e a s e s due t o t h e u r g e n t
t r a n s p o r t a t i o n of s t e e l and c o a l as w e l l as the
d e c r e a s e i n t r a n s p o r t a t i o n by t r u c k s (Yamashita,
C h a i r m a n , S h i p Owners' A s o c i a t i o n ) .

There were d i f f e r e n c e s o f v i e w s among t h r e e major

groups: o i l and gas s u p p l i e r s , o i l and gas using companies,

and general c o n s u m e r s . A s was t h e c a s e w i t h the Majors, the

1973 o i l crisis provided Japanese o i l and gas s u p p l i e r s with

a chance t o increase their p r o f i t s . The i n c r e a s e i n prices

of o i l a n d g a s was f a v o u r a b l e t o them i n that they could in

turn increase the price of t h e i r products. Therefore, the

oil and gas s u p p l i e r s mentioned above b a s i c a l l y agreed with

the consumption control by t h e government a n d o n l y worried

about excessive intervention by t h e g o v e r n m e n t . Indeed, some

oil suppliers were c r i t i c i z e d by members o f t h e D i e t f o r

taking advantage of the o i l shortage to increase their

 32

profits. The concerns expressed by the representative of

consumers were r e l a t e d to this point.

On the other hand, most o i l and gas using companies

were interested in maintaining their share and obtaining

special treatment from the government. They a l s o agreed with

the supply and demand c o n t r o l measures.

Since most of these a s s o c i a t i o n s maintained daily

communication channels with the bureaucrats, their desires

were u s u a l l y d i s c u s s e d with the related sector of the

government beforehand. Therefore, i t r a r e l y happened that

such groups expressed strong objections against any proposal

made by the bureaucrats i n the session of the Diet. The

difference of opinions shown a b o v e r e f l e c t e d how much

confusion the 1973 o i l crisis caused in Japan.

3. THE C H A R A C T E R I S T I C S OF THE JAPANESE P O L I T I C A L REACTION TO

THE OIL CRISIS

(1) A Turning Point i n Japanese Political History

The period of the first o i l crisis was a turning point

in Japanese p o l i t i c a l history. This point was partly

explained by the first section of this chapter, i n which the

reaction of the Diet and the Cabinet during the crisis was

reviewed. F i r s t , i n the Diet, the majority of the ruling

party, the Liberal Democratic Party ( L D P ) , was weakened by

 33

the result of the election i n late 1972. 6 2

I t should be

noted that t h e Japanese p o l i t i c a l system shifted from t h e

two-party system t o themulti-party system. 6 3

In the

two-party s y s t e m t h e LDP a s t h e r u l i n g party and t h e Japan

Socialist Party (JSP) a s t h e main opposition party took

initiative i n decision-making i n theDiet. In the

multi-party system, however, third p a r t i e s such ast h e

Komeito, the Democratic Socialist Party and t h e Japan

Communist Party increased their political influence i n the

Diet.

Secondly, there was a l s o a c h a n g e i n t h e terms of prime

ministers before thecrisis and a f t e r i t . A s shown i n Table

2-3, t h e terms of prime m i n i s t e r s became shorter after the

crisis. For instance, there were four prime m i n i s t e r s i n the

1970's w h i l e there were o n l y t w o i n t h e 1 9 6 0 ' s . One r e a s o n

for this c h a n g e was t h e d i v e r s i f i c a t i o n o f power i n t h e LDP.

Such prime m i n i s t e r s as Yoshida, Ikeda and Sato, who

maintained their p o s i t i o n s f o r more t h a n four years,

established the mainstream o f t h e LDP. A f t e r the resignation

of Sato, however, there was c o m p e t i t i o n among leaders of the

party as explained p r e v i o u s l y . Even t h o u g h T a n a k a won t h e

election a n d became p r i m e m i n i s t e r , he h a d t o d e a l with

anti-Tanaka groups formed by Fukuda, M i k i and other chief

members o f t h e LDP. T h i s was t h e c a s e not only with Tanaka

but also with other prime m i n i s t e r s like Miki and Fukuda.

Asahi
62
Nenkan, 1973 (Tokyo: Asahi Shinbunsha, 197.3), p .
244.
I b i d . , p. 244.
6 3
 34

When e a c h o f them became p r i m e m i n i s t e r , t h o s e who wanted to

succeed him organized t h e movement to accelerate the

succession. As a r e s u l t , i t became d i f f i c u l t f o r any prime

minister to maintain his position f o r more t h a n two

years. " 6

In a d d i t i o n t o changes i n the situation of the Diet and

the l e a d e r s h i p o f t h e LDP, t h e r e was a c h a n g e i n major

political issues which t h e government had t o d e a l with

before and a f t e r the c r i s i s . Until the early 1970's, the

government had t o concern itself with p o l i t i c a l issues

related to World War I I . Among them, t h r e e important issues

were t h e e x t e n s i o n of t h e Japan-U.S. Treaty of Mutual

Cooperation and S e c u r i t y , the r e s t o r a t i o n of Okinawa, and

the restoration of the Japan-China relationship. The

Japan-U.S. T r e a t y was amended a n d e x t e n d e d i n 1 970. 6 5

Okinawa was r e t u r n e d t o Japan i n 1972. 6 6

The Japan-China

relationship was restored i n 1972. 6 7

The o i l c r i s i s

accelerated the inflationary t r e n d and s t i m u l a t e d t h e

government to deal w i t h economic problems as a high

priority. I t i s suggested that the p o l i t i c a l priority

shifted from postwar political i s s u e s t o economic issues. 6 8

6
" S h i g e r u H a y a s h i & K i y o a k i T s u j i , op. c i t . , p p . 4 0 4 - 4 0 5 .
Asahi
65
Nenkan, 1971 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 7 1 ) , p .
256.
Asahi
66
Nenkan, 1973 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 7 3 ) , p p .
232-235.
Ibid.,
67
pp. 218-231.
6
I n t h e b a c k g r o u n d o f t h i s s h i f t , t h e r e was a c h a n g e i n t h e
8

b a l a n c e o f p o w e r b e t w e e n J a p a n a n d t h e U n i t e d S t a t e s . On t h e
one h a n d , J a p a n became a n i n d e p e n d e n t c o u n t r y n o t o n l y i n
t h e p o l i t i c a l c o n t e x t b u t a l s o i n t h e e c o n o m i c c o n t e x t . On
the other hand, t h e U n i t e d S t a t e s d e c r e a s e d i t s economic
power i n r e l a t i v e t e r m s . T h i s p o i n t i s r e f e r r e d t o i n Frank
 35

The Japanese government took strong initiative i n

solving postwar political problems and i npursuing high

economic growth until the end o f t h e 1960's. Since t h e

beginning o f t h e 1970's, however, t h en a t i o n a l interest as

well as p o l i t i c a l power became d i v e r s i f i e d i n l o o k i n g for a

new direction f o r Japan. In this context, the o i l crisis i n

1973 was a t u r n i n g point of postwar Japanese political

history.

(2) The F u n c t i o n of t h e Bureaucracy

The Japanese p o l i t i c a l reaction t o the o i l crisis shows

that the crisis occurred at a turning point i n postwar

Japanese p o l i t i c a l h i s t o r y . However, theinfluence of the

bureaucracy was m a i n t a i n e d throughout this history.

The Japanese bureaucracy i s organized under t h e

direction of the Cabinet. There are two types o f

vice-ministers under the minister o f each m i n i s t r y o r

governmental section. One i s a p a r l i a m e n t a r y vice-minister,

and the other i s a permanent v i c e - m i n i s t e r . A parliamentary

vice-minister i s appointed f r o m members o f t h e Diet. 6 9

A

permanent vice-minister i s appointed from the bureaucrats,

and this i s considered the highest position of the

6 8
( c o n t ' d ) C. L a n g d o n , Japan' s Foreign Policy (Vancouver:
U n i v e r s i t y o f B r i t i s h Columbia P r e s s , 1973), t r a n s l a t i o n ;
S h i g e o F u k u d a , Sengo no Nihon Gaiko - ( T o k y o : M i n e r u b a S h o b o ,
1976), p. 16.
6 9
The position of a parliamentary vice-minister i s
c o n s i d e r e d the f i r s t s t e p t o becoming an i n f l u e n t i a l
p o l i t i c i a n . U s u a l l y a member o f t h e D i e t who i s e l e c t e d
t h r e e t i m e s becomes a c a n d i d a t e f o r p a r l i a m e n t a r y
v i c e - m i n i s t e r . T s u n e o W a t a n a b e , op. c i t . , p. 4 1 .
 36

b u r e a u c r a c y . An e l i t e bureaucrat i susually recruited just

after graduation from u n i v e r s i t y and promoted i n s i d e the

bureaucracy f o r around thirty five years. As a r e s u l t , elite

bureaucrats tend t o have a s e n s e o f u n i t y , a n d even a

minister cannot ignore the opinion o f t h e permanent

vice-minister who h a s a s t r o n g influence on t h e b u r e a u c r a t s

of his ministry. 7 0
In t h i s c o n t e x t , the opinion of Shinsaku

Hogen, who e x p r e s s e d c o n c e r n a b o u t a d o p t i n g pro-Arab

policies a s t h e permanent v i c e - m i n i s t e r of the M i n i s t r y of

Foreign Affairs, h a d an impact on t h e d e c i s i o n - m a k i n g of the

government.

In the case of the M i n i s t r y of I n t e r n a t i o n a l Trade and

Industry (MITI), t h e power and i n f l u e n c e of the bureaucracy

has drawn s p e c i a l a t t e n t i o n from foreigners. 7 1

The MITI

bureaucracy influenced the decision-making process of the

external p o l i c y during the o i l c r i s i s by e m p h a s i z i n g t h e

importance of pro-Arab p o l i c i e s . As f a r a s d o m e s t i c p o l i c i e s

were c o n c e r n e d , the Cabinet established a special committee

and decided on s e v e r a l texts as noted i n the previous

sections. T h e s e p o l i c y m e a s u r e s were m a i n l y d r a f t e d by

b u r e a u c r a t s and i m p l e m e n t e d by them. M o r e o v e r , i t is

important to point out that a law i s u s u a l l y p r e p a r e d by

b u r e a u c r a t s a n d p r o p o s e d by t h e m i n i s t e r i n Japan, while i t

is often prepared a n d p r o p o s e d by members o f t h e S e n a t e a n d

7 0
Ibid. r p p . 62-64.
7 1
T h e h i s t o r y and r o l e o f MITI i s e x p l a i n e d i n C h a l m e r s A.
J o h n s o n , MITI and the Japanese Miracle: the growth of
industrial policy 1925-1975 (Stanford, C a l i f o r n i a : Stanford
U n i v e r s i t y P r e s s , 1982), t r a n s l a t i o n ; T o s h i h i k o Yano,
Tsusansho to Ni honno Kiseki ( T o k y o : TBS B u r i t a n i k a , 1982).
 37

Congress i n the United States.

The basic f u n c t i o n of the bureaucracy i s t o implement

policy measures adopted by t h e C a b i n e t . 7 2

Therefore, the

minister o f each m i n i s t r y has t h e power of managing

bureaucrats. However, b o t h the minister and t h e

parliamentary v i c e - m i n i s t e r change so f r e q u e n t l y that they

do n o t have enough time t o master a l l the operations i n

their m i n i s t r y . On the other hand, t h e permanent

vice-minister i s well acquainted with the task of the

ministry. As a r e s u l t , a minister needs t h e h e l p of

bureaucrats, for instance, t o answer q u e s t i o n s raised i nthe

Diet. Even though the Diet i s defined t o be t h e s o l e

law-making body by t h e C o n s t i t u t i o n , 7 3
i t i s almost

impossible f o r a member of the Diet t o propose a law without

the help of bureaucrats. ' 7

Since the Meiji Restoration i n 1868, Japan has t r i e d to

catch up w i t h Western c o u n t r i e s . In the process of catching

up, t h e Japanese needed an i n s t i t u t i o n a l power which could

coordinate various i n t e r e s t s to accomplish economic growth.

The bureaucracy acted as a coordinator by u s i n g their right

to grant permission on v a r i o u s issues. In spite of the fact

that the discretionary authority gradually decreased

according t o the development of the Japanese economy a n d t h e

liberalization of t h e Japanese economic system, the

bureacracy r e t a i n e d some r e s i d u a l a u t h o r i t y . I n s u c h a

7 2
T h e C o n s t i t u t i o n of Japan, A r t i c l e 73, Japan, S e c r e t a r i a t ,
H o u s e o f R e p r e s e n t a t i v e s , op. cit., p. 18.
7 3
, A r t i c l e 4 1 , ibid., p. 12.
7
" T s u n e o W a t a n a b e , op. cit., pp. 62-64.
 38

critical time a s t h e 1973 o i l c r i s i s , the bureaucracy was

provided an opportunity to reactivate i t sinfluence. The

major c h a r a c t e r i s t i c of Japan's p o l i t i c a l reaction to the

1973 o i l c r i s i s was that the bureaucracy assumed the r o l e of

coordinator t o overcome the crisis.

 39

4. TABLES

T A B L E 2-1

THE NUMBER OF S E A T S I N THE D I E T BY J A P A N E S E P O L I T I C A L

PARTIES

1968 1970 1971- 1972 1 972 1 973 1974

1 2/27 1/1 4 12/31 4/28 1 2/22 1/26 1 2/27
HOUSE OF
REP.
-Liberal 274 300 300 299 284 284 279
Democratic
P a r t y (LDP)
-Japan 1 37 90 90 90 118 1 18 1 17
Socialist
Party (JSP)
-Japan 4 1 4 1 4 14 39 39 39
Communist
Party (JCP)
-Komeito, 25 47 47 47 29 .29 30
National
Counc i l
(NCK)
-Democratic 31 32 30 30 20 20 20
Socialist
P a r t y (DSP)
-Indep. 4 3 2 2 1 1 1
-Vacancy 1 1 0 8 9 0 0 5
TOTAL 486 486 491 491 491 491 491
HOUSE OF
COU.
-LDP 136 138 133 1 33 136 136 128
-JSP 64 63 65 65 62 62 62
-JCP 7 7 10 10 10 10 20
-NCK 24 24 23 23 23 23 24
-DSP 10 10 1 3 13 1 2 12 10
- N U N CLUB 4 4 4 4 4 4 4
-Indep. 4 1 3 3 2 2 4
-Vacancy 1 3 1 1 3 3 0
TOTAL 250 250 252 252 252 252 252

S o u r c e : Asahi Nenkan, 1969-1975 (Tokyo: Asahi

Shinbunsha, 1969-1975).

N o t e : HOUSE OF R E P . = HOUSE OF R E P R E S E N T A T I V E S , HOUSE OF

COU.= HOUSE OF C O U N C I L L O R S , I n d e p . = I n d e p e n d e n t s .
 40

T A B L E 2-2

MAJOR MEMBERS OF T A N A K A ' S C A B I N E T

F i r s t Term Second Term

('72.7.7-'72 12.22) ('72.12.22-'74.12.9)
-Prime Minister Tanaka(T) Tanaka(T)
-Foreign Affairs Ohira(O) Ohira(O)
Minister Kimura(I)
('74.7.16-)
-Finance Minister Ueki(T) Aichi(T)
Tanaka(T)
('73.11.23-)
Fukuda(F)
('73.11.25-)
Ohira(O)
('74.7.16-)
-MITI M i n i s t e r Nakasone(N) Nakasone(N)
-Minister of State Miki(M)
(Vice Prime
Minister)
-Minister of State Arita(F) Kosaka(O)
for Uchida(O)
Economic P l a n n i n g (' 7 3 . 1 1 . 2 5 - )
Agency Kuranari(N)
('74.11.11-)
-Minister of State Nakasone(N) Maeda(T)
for Morishima(M)
Science and ('73.11.25-)
Technology Agency Adachi(T)
('74.11.11-)
-Secretary General Nikaido(T) Nikaido(T)
Cabinet Secretariat Takeshita(T)
('74.11.11-)

S o u r c e : S h i g e r u H a y a s h i & K i y o a k i T s u j i , Ni hon Naikaku

Shiroku, 6 v o l s . ( T o k y o : D a i - i c h i H o k i , 1 9 8 1 ) , V o l . 6.

Note:
1. T = T a n a k a F a c t i o n , 0 = O h i r a Faction, N = Nakasone
F a c t i o n , M = M i k i F a c t i o n , F = Fukuda Faction, I =
Independents.
2. V i c e P r i m e M i n i s t e r M i k i a l s o acted as Secretary
General o f Environmental Agency u n t i l J u l y 12, 1974.
 41

TABLE 2-3

P R I M E M I N I S T E R S OF JAPAN (1946-1985)

May 22, 1 946 Yoshida, Shigeru

May 22, 1947 Katayama, Tetsu
Mar. 10, 1 948 Ashida, Hitoshi
Oct. 15, 1948 Yoshida, Shigeru
Dec . 10, 1954 Hatoyama, I c h i r o
Dec. 23, 1956 I s h i b a s h i , Tanzan
Feb. 25, 1957 K i s h i , Nobusuke
July 19, 1960 Ikeda, Hayato
Nov. 9, 1964 Sato, Eisaku
July 7, 1972 Tanaka, Kakuei
Dec. 9, 1974 M i k i , Takeo
Dec. 24, 1976 Fukuda, Takeo
Dec. 7, 1978 Ohira, Masayoshi
July 17, 1980 S u z u k i , Zenko
Nov. 27, 1 982 Nakasone, Y a s u h i r o

Source: A k i r a Nakayama, ed., Japan 1985 (Tokyo: Keizai

K o h o C e n t r e , 1 9 8 5 ) ; Asahi Nenkan, 1984 (Tokyo: A s a h i
Shinbunsha, 1985).

Note: The dates are those of initial cabinet formation.

 CHAPTER THREE

THE ECONOMIC A S P E C T S OF J A P A N ' S REACTION

TO THE 1973 O I L C R I S I S

This chapter will examine t h e economic aspects of

Japan's reaction t o t h e 1973 o i l c r i s i s . As noted i n Chapter

One, J a p a n ' s reaction t o the c r i s i s c a n be e x a m i n e d from t h e

three perspectives of p o l i t i c s , economics and b u s i n e s s ; this

chapter will c o n c e n t r a t e on t h e e c o n o m i c point of view.

It h a s a l r e a d y b e e n e x p l a i n e d t h a t t h e 1973 o i l c r i s i s

was located at a turning point i n t h e postwar political

history o f Japan. This c r i s i s was e q u a l l y i m p o r t a n t i n

postwar economic history. Japanese economic history since

the M e i j i R e s t o r a t i o n (1868) i s usually divided into three

stages. The f i r s t stage i s from t h e 1860's t o t h e e a r l y

1900's. The second stage i s from the early 1900's t o t h e end

of World War I I i n 1 9 4 5 . The t h i r d stage i s from t h e end of

the war t o t h e p r e s e n t . In this classification, the f i r s t

stage i s characterized by t h e development of l i g h t industry,

producing such goods a s c o t t o n and s i l k . The s e c o n d stage i s

characterized by t h e g r o w t h of heavy industry, producing

steel and ships. The t h i r d stage i s characterized by both

heavy and chemical industries, producing petrochemicals and

other products using petroleum as a m a t e r i a l or fuel. The

heavy and chemical industries developed following the

42
 43

"energy revolution," 7 5
symbolized by t h e s h i f t i n the major

energy source from c o a l to o i l after W o r l d War II. Indeed,

the energy revolution contributed greatly to the

accomplishment of Japan's high rate of economic growth.

The 1973 o i l c r i s i s severely weakened Japan's oil-based

economic s t r u c t u r e , and heavy industry, dependent on o i l ,

suffered most severely during the c r i s i s . I t thus became

necessary f o r Japanese industry t o change i t ss t r u c t u r e from

one t h a t was petroleum-reliant t o one t h a t was

energy-conserving and k n o w l e d g e - i n t e n s i v e . This accelerated

the growth of t e r t i a r y industry.

Since the o i l c r i s i s changed the world's economic

conditions, i t was necessary not only f o r Japan but a l s o f o r

other industrialized countries to adjust their industrial

structures. In t h i s respect, i t i s sometimes argued that

Japan succeeded i n the adjustment process better than other

industrialized countries, and that this success caused

economic friction between Japan and other countries. 7 6

The p u r p o s e of t h i s chapter i s to elucidate how Japan

adjusted economically t o t h e 1973 o i l c r i s i s .

7 5
I n K a n i c h i K o n d o & H i r o s h i O s a n a i , Sengo Sangyo Shi eno
Shogen, 3 v o l s . ( T o k y o : M a i n i c h i S h i n b u n s h a , 1 9 7 8 ) , V o l . 3,
t h e r e i s a s e c t i o n t i t l e d enerugii kakumei (energy
r e v o l u t i o n ) " i n which l e a d i n g Japanese s c h o l a r s and
businessmen d i s c u s s the process of Japan's postwar energy
development.
7 6
T h e d i f f e r e n c e between t h e economic performance of Japan
and t h o s e o f o t h e r i n d u s t r i a l i z e d c o u n t r i e s i s a b a s i c c a u s e
of t h e r e c e n t t r e n d of t h e yen a p p r e c i a t i o n .
 44

1. THE J A P A N E S E ECONOMIC STRUCTURE

(1) J a p a n ' s P o s t w a r E c o n o m i c Growth

As shown i n Table 3-1, t h e economic growth rate of

Japan during t h e 1960's was v e r y high. The N a t i o n a l Income

Doubling Plan of Ichiro Nakayama, e n a c t e d by t h e Ikeda

government i n November 1960, a c t e d as the basic plan f o r

growth. A c t u a l p e r f o r m a n c e was g e n e r a l l y h i g h e r than t h e

targets as indicated i n Table 3-2.

Kanamori lists four elements which c o n t r i b u t e d t o

Japan's rapid economic growth. 7 7

1. H i g h s a v i n g s r a t i o :
The h i g h s a v i n g s r a t e s u p p o r t e d increased
investments a n d r a p i d economic growth. I f
investments had increased without the high savings
r a t e , they would have caused i n f l a t i o n a n d d e f i c i t
i n t h e i n t e r n a t i o n a l b a l a n c e o f payments. I t was
i m p o r t a n t t o i n c r e a s e t h e p r o f i t share n o t by
unequal income d i s t r i b u t i o n b u t by i n c r e a s i n g t h e
i n d i v i d u a l savings r a t e . [See Table 3 - 3 ] .

2. T e c h n o l o g y i m p o r t s :
There were a c c u m u l a t e d t e c h n o l o g i e s i nt h e postwar
western w o r l d w h i c h Japan was a b l e t o import a s a
l a t e comer. T h e r e was a l s o e n t r e p r e n e u r s h i p t o a d o p t
new t e c h n o l o g i e s a n d t o e x p a n d i n v e s t m e n t s u n d e r t h e
c o m p e t i t i v e b u s i n e s s s i t u a t i o n i n Japan. The h i g h
q u a l i t y o f l a b o u r a l s o c o n t r i b u t e d t o t h e u s e o f new
technologies.

3. E x p o r t s :
The i n c r e a s e i n t h e c o m p e t i t i v e p o w e r r e a l i z e d b y
technical innovation andc a p i t a l investments
c o n t r i b u t e d t o t h e i n c r e a s e i n Japan's e x p o r t s . The
free trade system a l s o helped Japan t o increase i t s
exports.

4. P o l i c y :
Government p o l i c i e s a l s o c o n t r i b u t e d t o t h e growth.
Zaibatsu dissolution, agricultural
7 8

7 7
H i s a o K a n a m o r i , Koza Nihon Keizai, 2 v o l s . ( T o k y o : Chuo
K e i z a i s h a , 1 9 8 2 ) , 1:28-30.
7 B
U c h i n o e x p l a i n s zaibatsu dissolution as follows:
"On N o v e m b e r 2 , 1 9 4 5 , t h e g o v e r n m e n t o r d e r e d t h e
 reform, 7 9
and labour r e l a t i o n s reform 8 0
encouraged

7 8
(cont'd) freezing of the assets of fifteen of the
l a r g e s t zai bat su, i n c l u d i n g M i t s u i , M i t s u b i s h i ,
Sumitomo, a n d Y a s u d a . I n May 1 9 4 6 , t h e H o l d i n g
C o m p a n i e s L i q u i d a t i o n C o m m i s s i o n was e s t a b l i s h e d
and, i n September 1947, t h e commission o r d e r e d t h e
d i s s o l u t i o n o f M i t s u i Bussan and M i t s u b i s h i S h o j i .
D u r i n g t h e same p e r i o d , GHQ [ G e n e r a l H e a d Q u a r t e r s ]
c a r r i e d o u t a p u r g e o f p u b l i c o f f i c i a l s who w e r e
considered m i l i t a r i s t s and of important f i g u r e s i n
t h e f i n a n c i a l w o r l d who w e r e t h o u g h t t o h a v e
cooperated with t h e m i l i t a r i s t s i n p u r s u i n g t h e war.
T h e zai batsu w e r e b r o k e n u p i n t h i s w a y , b y s e v e r i n g
t h e i r h o l d i n g companies, t h e core o f zaibatsu
c o n t r o l , and by p u r g i n g t h e i r l e a d e r s , i n c l u d i n g
m e m b e r s o f f o u n d i n g f a m i l i e s " ( T a t s u r o U c h i n o , op.
c i t . , p.2 2 ) .
7 9
Uchino explains as follows:
" A n t i c i p a t i n g f o r m a l d i r e c t i v e s f r o m GHQ, t h e
government took t h e i n i t i a t i v e , a n d i n December
1945, p u s h e d t h r o u g h t h e D i e t a d r a f t p r o p o s a l t h a t
would have r a d i c a l l y r e v i s e d t h e wartime
A g r i c u l t u r a l L a n d s A d j u s t m e n t Law ( e n a c t e d i n 1 9 3 8 ) .
The r e v i s e d l a w w o u l d h a v e f o r c e d t h e s a l e o f a l l
a g r i c u l t u r a l land i n the possession of resident
landholders exceeding five hectares, the national
average f o r i n d i v i d u a l landholdings. Moreover, a l l
t e n a n t l a n d s were t o be s o l d a t low p r i c e s t o former
t e n a n t s w i t h t h e government a c t i n g a s t h e
i n t e r m e d i a r y " {Ibid., p. 2 0 ) .
8 0
Uchino explains as follows:
" L a b o r r e f o r m , t h e s e c o n d p i l l a r o f GHQ's e c o n o m i c
d e m o c r a t i z a t i o n program, a l s o proceeded r a p i d l y w i t h
t h e e n a c t m e n t o f t h r e e b a s i c l a w s m o d e l e d on
A m e r i c a n l a b o r l e g i s l a t i o n : t h e T r a d e U n i o n Law
(December 2 2 , 1 9 4 5 ) ; t h e L a b o r S t a n d a r d s Law ( A p r i l
7, 1 9 4 7 ) ; a n d t h e L a b o r R e l a t i o n a d j u s t m e n t L a w
(September 2 7 , 1947). T h e T r a d e U n i o n Law
e s t a b l i s h e d , f o rt h e f i r s t time i n Japan's h i s t o r y ,
the freedom o f workers t oo r g a n i z e t r a d e unions and
the r i g h t o f assembly. TheLabor R e l a t i o n s
A d j u s t m e n t Law e s t a b l i s h e d methods a n d p r o c e d u r e s
f o r d i s p u t e s e t t l e m e n t s and d e f i n e d l i m i t s on s t r i k e
b e h a v i o r . T h e L a b o r S t a n d a r d s Law was a
r e v o l u t i o n a r y advance i n l e g i s l a t i o n p r o t e c t i n g
workers, which had lagged behind i n Japan. I t c a l l e d
for the elimination o f f e u d a l i s t i c working
conditions, prohibited forced labor, established the
p r i n c i p l e s o f t h e e i g h t - h o u r work d a y a n d h o l i d a y
s y s t e m s , s e t l i m i t s o n t h e e m p l o y m e n t o f women a n d
minors, and p r o v i d e d f o rcompensation f o r
w o r k - r e l a t e d i n j u r y . Together, these laws
e s t a b l i s h e d the l e g i s l a t i v e foundation f o r one o f
 46

h i g h e n t r e p r e n e u r s h i p and a h i g h l y c o m p e t i t i v e
m a r k e t . They a l s o c o n t r i b u t e d t o the e x p a n s i o n of
t h e d o m e s t i c m a r k e t and t h e e q u a l i z a t i o n of n a t i o n a l
income. D e f e n c e e x p e n d i t u r e s were kept low and
i n d u s t r i a l r e s o u r c e s were a l l o c a t e d t o p r o d u c t i v e
i n v e s t m e n t s . In a d d i t i o n , t h e N a t i o n a l Income
D o u b l i n g P l a n e n c o u r a g e d J a p a n e s e p e o p l e t o work
h a r d , and t r a d e l i b e r a l i z a t i o n p r e s s u r e s from the
l a t e 1 9 5 0 ' s u r g e d them t o p u r s u e an i n c r e a s e i n
productivity.

There i s no question that external trade has been a

very important factor i n the economic development of Japan

since i t i s a country which imports raw materials and

exports processed products. Indeed, Japan's external trade

expanded by more t h a n 15% during the 1960's as shown in

Table 3-2. Table 3-4 shows more d e t a i l s about how Japan's

external trade has increased. Since the late 1960's Japan's

trade balance showed a surplus except f o r the p e r i o d of the

first and second o i l crises. Major trade items i n Table 3-5

indicate the basic s t r u c t u r e of the J a p a n e s e economy. Both

in 1970 and 1971 the exports of iron and steel products

exceeded the import of petroleum. However, a f t e r 1972, the N

import of petroleum exceeded the exports of steel and iron

products. Moreover, the import of petroleum came t o exceed

the exports of motor v e h i c l e s and steel i n 1974. Considering

the fact that the volume of o i l imports only increased by

33.5% from 197 million litres in 1970 t o 263 million litres

in 1975, the effect of the o i l price i n c r e a s e on Japan's

external trade was clearly of major importance.

0
(cont'd) the most p r o g r e s s i v e l a b o r r e l a t i o n s systems
in the w o r l d " {Ibid., pp. 2 0 - 2 2 ) .
 47

(2) O i l and the Japanese Industrial Structure

Throughout the rapid economic growth period, the

Japanese industrial structure changed c o n s i d e r a b l y . Table

3-6 s h o w s how the structure changed from 1960 to 1977.

Following the g e n e r a l t r e n d of industrialization, the

secondary and tertiary sectors increased their shares both

in real p r o d u c t i o n and employment i n the long term. However,

this growth exhibited some s p e c i a l characteristics. First,

the real p r o d u c t i o n of the a g r i c u l t u r a l , forest and fishery

industries increased slightly from 1973 to 1977. This

increase was possible because p r o d u c t i v i t y i n c r e a s e d due to

industrialization, including the use of o i l as a fuel for

agricultural production. Secondly, t h e number of employees

in the industry d i d not decrease v e r y much in spite of the

increase in productivity. T h i s was because the number of

farmers who had secondary occupations increased. 8 1

Thirdly, ]

the manufacturing industry's share of total production and

employment d e c r e a s e d from 1973 to 1977. This phenomenon

reflects the impacts of the 1973 o i lcrisis. The o i l price

increase accelerated the shift of p r o d u c t i o n and employment

from oil-consuming industry to oil-conserving industry.

The shift i n the major energy sources was even more

drastic. In the postwar economic reconstruction process of

Japan, coal first took an important role. The Japanese

8 1
0 f t o t a l f a r m e r s , t h e p e r c e n t a g e o f sengyo noka (farmers
w i t h i n c o m e o n l y f r o m f a r m i n g ) d e c r e a s e d f r o m 3 4 . 3 % i n 1960
t o 1 3 . 4 % i n 1 9 8 0 . On t h e o t h e r h a n d , dai nishu kengyo noka
( f a r m e r s w i t h more income f r o m o t h e r j o b s l i k e f a c t o r y work
t h a n f r o m f a r m i n g ) i n c r e a s e d f r o m 3 2 . 1 % i n 1960 t o 6 5 . 1 % i n
1 9 8 0 . H i s a o K a n a m o r i , op. c i t . , p . 4 9 .
 48

government adopted two major policies to r e c o n s t r u c t the

economy a f t e r t h e war. One was the e s t a b l i s h m e n t of the

Reconstruction Bank, and the o t h e r was the implementation of

the Priority Production Concept. Uchino explains these two

policies as follows:

E s s e n t i a l l y , the P r i o r i t y P r o d u c t i o n Concept
was a n a t t e m p t t o r e v e r s e t h e v i c i o u s c y c l e b e t w e e n
t h e c o a l and s t e e l i n d u s t r i e s t h a t had l e d t o
massive b o t t l e n e c k s . A l l economic p o l i c i e s would
c o n c e n t r a t e on i n c r e a s i n g c o a l p r o d u c t i o n ; t h e c o a l
w o u l d t h e n be t h r o w n i n t o t h e s t e e l i n d u s t r y t o
s t i m u l a t e s t e e l p r o d u c t i o n ; a n d s t e e l w o u l d t h e n be
thrown back i n t o the c o a l i n d u s t r y . E x i s t i n g
s h o r t a g e s o f c o a l i n t h e s e two i n d u s t r i e s w o u l d be
f i l l e d by i m p o r t e d c r u d e o i l u n t i l i n c r e a s e s c o u l d
be c h a n n e l e d g r a d u a l l y t o o t h e r b a s i c i n d u s t r i e s t o
promote o v e r a l l economic r e c o v e r y .
To a c h i e v e t h i s , c o n t r o l l e d c o m m o d i t i e s were
a l l o c a t e d on a p r i o r i t y b a s i s t o t h e c o a l a n d s t e e l
i n d u s t r i e s , a n d t h e R e c o n s t r u c t i o n F i n a n c e B a n k was
e s t a b l i s h e d under the F i n a n c i a l I n s t i t u t i o n s C a p i t a l
F i n a n c i n g R e g u l a t i o n to channel funds i n t o the
p r i o r i t y i n d u s t r i e s ( u n t i l 1947 t h e b a n k h a d e x i s t e d
as t h e I n d u s t r i a l Bank of J a p a n w i t h i n t h e
Reconstruction Finance Department). 8 2

In the Priority Production Concept, o i l was a substitute for

coal. However, as shown i n Table 3-7, the major energy

supply source shifted from coal to o i l . Until the middle of.

the 1950's t h e share of coal i n the total energy supply was

more than 50%. Three-quarters of the total energy had been

supplied domestically until t h e n . However, a f t e r that date

the share of o i l i n c r e a s e d . As little o i l was produced in

Japan, the import ratio i n the total energy supply increased

from one-quarter t o more t h a n three-quarters in 15 years

leading to the increase in o i l imports. This shift in energy

supply was closely related to Japanese postwar economic

8 2
Tatsuro Uchino, op. cit., pp. 36-37.
 49

development.

(3) The Economic Situation o f Japan Just Before the

1973 O i l Crisis

Considering the c h a r a c t e r i s t i c s o f the Japanese economy

and i t s industrial structure, i t caneasily be i m a g i n e d that

Japan would suffer seriously i f the price o f o i l was r a i s e d

by more t h a n three times i nless than one y e a r . There was,

however, another element i ne x p l a i n i n g the economic

situation of Japan before the c r i s i s . T h i s e l e m e n t was

"Nixon shock" i n 1971 8 3

.

It h a s a l r e a d y been p o i n t e d o u t t h a t Japan accomplished

its economic growth partly through the expansion of i t s

external trade. The e x p a n s i o n o f t r a d e was c l o s e l y related

to the exchange rate o f the yen. The.exchange rate of the

8 3
A c c o r d i n g t o t h e e x p l a n a t i o n by U c h i n o , two i n c i d e n t s
c o n s t i t u t e d the "Nixon shock:"
"The f i r s t ' N i x o n s h o c k ' o c c u r r e d i n J u l y 1 9 7 1 , w h e n
t h e N i x o n A d m i n i s t r a t i o n a n n o u n c e d i t s new C h i n a
p o l i c y andNixon v i s i t e d B e i j i n g without
c o o r d i n a t i n g t h i s major f o r e i g n p o l i c y s h i f t w i t h
the J a p a n e s e government. . . . The second 'Nixon
shock' o c c u r r e d on August 15, 1971, w i t h t h e
a n n o u n c e m e n t o f N i x o n ' s New E c o n o m i c P r o g r a m , a n d
was d i r e c t l y r e l a t e d t o t h e U n i t e d S t a t e s - J a p a n
f r i c t i o n a n d , more g e n e r a l l y , t o t h e d e e p e n i n g
i n t e r n a t i o n a l c u r r e n c y c r i s i s " (Ibid., p. 183).
T h e e s s e n t i a l p o i n t s o f N i x o n ' s New E c o n o m i c P r o g r a m
are summarized a s f o l l o w s :
"1. S u s p e n s i o n o f c o n v e r t i b i l i t y o f t h e U.S. d o l l a r
into gold and other currencies;
2. A 10 p e r c e n t s u r t a x o n i m p o r t s ;
3. A 10 p e r c e n t r e d u c t i o n i n f o r e i g n a i d
expenditure;
4. A n i n e t y - d a y f r e e z e o n d o m e s t i c w a g e s a n d p r i c e s ;
5. A t a x c u t d e s i g n e d t o s t i m u l a t e t h e d o m e s t i c
e c o n o m y " (Ibid., p. 184).
 50

yen against t h e US d o l l a r was s e t a t 360 y e n / d o l l a r on April

25, 1949. T h i s became t h e o f f i c i a l yen exchange rate on t h e

entry of Japan into the I n t e r n a t i o n a l Monetary Fund (IMF) i n

August 1952. S i n c e then t h e J a p a n e s e economy h a s developed,

and the exchange r a t e which had been c o n s i d e r e d overvalued

at the beginning came t o be c o n s i d e r e d undervalued by t h e

time the "Nixon shock" took place. Ishimaru explains the

process as f o l l o w s :

1 9 5 0 - 1 9 5 5 : Due t o t h e o v e r v a l u e d y e n a n d t h e
d e c r e a s e i n p r o d u c t i o n f a c i l i t i e s b y W o r l d War I I ,
the Japanese f o r e i g n trade balance d u r i n g this
p e r i o d was a n n u a l l y a 393 m i l l i o n d o l l a r deficit.
The c u r r e n t b a l a n c e was a d j u s t e d b y t h e s u r p l u s i n
i n v i s i b l e trade mainly owing t o s p e c i a l procurements
f o r t h e K o r e a n War.

1956-1960: The i n c r e a s e i n e x p o r t s stabilized

the trade balance, but t h e c u r r e n t balance d i d not
improve because of the end of t h e s p e c i a l
p r o c u r e m e n t . T h e y e n was s t i l l a weak c u r r e n c y .

1961-1964: The g r o w t h i n t h e J a p a n e s e
production f a c i l i t i e s strengthened the i n t e r n a t i o n a l
c o m p e t i t i v e power o f J a p a n e s e e x p o r t s . However,
s i n c e J a p a n e s e i m p o r t s a l s o i n c r e a s e d due t o t h e
high economic growth r a t e , t h e trade balance d i d not
i m p r o v e . The y e n g r a d u a l l y s t r e n g t h e n e d . Japan
b e c a m e a member o f IMF a r t i c l e 8 n a t i o n s , " 8

a b o l i s h e d i t s i m p o r t r e s t r i c t i v e m e a s u r e s by means
of the f o r e i g n exchange b u d g e t 8 5
and s t a r t e d import

8
" A r t i c l e 8 o f t h e IMF c o d e o b l i g e s t h e member n a t i o n s t o
a b o l i s h f o r e i g n exchange c o n t r o l s on c u r r e n t t r a n s a c t i o n s
and d i s c r i m i n a t o r y c u r r e n c y c o n t r o l s , and t o r e s t o r e t h e
c o n v e r t i b i l i t y o f t h e n a t i o n a l c u r r e n c y owned by f o r e i g n
c o u n t r i e s . A r t i c l e 14 p r o v i d e s t h o s e n a t i o n s w h i c h c a n n o t
implement the o b l i g a t i o n s i n A r t i c l e 8 w i t h exemptions f o r a
t r a n s i t i o n a l p e r i o d . A n A r t i c l e 14 n a t i o n , t h e r e f o r e , h a s t o
c o n s u l t a n n u a l l y w i t h t h e IMF a u t h o r i t y on i t s p r o g r e s s a n d
e f f o r t s i n implementing the A r t i c l e 8 o b l i g a t i o n s . Japan, as
a n A r t i c l e 14 n a t i o n , w a s s u g g e s t e d t o b e c o m e a n A r t i c l e 8
n a t i o n a t t h e 1 9 6 2 c o n s u l t a t i o n . A n IMF r e s o l u t i o n r e q u e s t e d
t h a t J a p a n become an A r t i c l e 8 n a t i o n i n 1963 a n d J a p a n
f i n a l l y became i t i n A p r i l 1964.
8 5
T h e f o r e i g n exchange budget i s e x p l a i n e d as f o l l o w s :
"The f o r e i g n exchange budget and the import deposit
 51

liberalization policies.
1 9 6 5 - 1 9 6 7 : The s u r p l u s t r e n d i n J a p a n ' s '
i n t e r n a t i o n a l t r a d e b a l a n c e s t a b i l i z e d i n 1965, and
t h e y e n became s t r e n g t h e n e d . The t r a d e s u r p l u s
d u r i n g t h i s p e r i o d a m o u n t e d t o 1,778 million
dollars.

1 9 6 8 - 1 9 7 0 : The y e n became e v e n s t r o n g e r a r o u n d
1 9 6 8 . T h e t r a d e s u r p l u s d u r i n g t h e p e r i o d was 3,406
m i l l i o n d o l l a r s . T h e i n t e r n a t i o n a l b a l a n c e was a
1,592 m i l l i o n d o l l a r s u r p l u s . 8 6

The yen a p p r e c i a t e d from 360 yen/dollar to 308

yen/dollar at the Smithsonian Conference i n December

1971. 8 7
Japan's trade balance of the year was 7,900 million

8 5
( c o n t ' d ) scheme were u t i l i z e d t o g e t h e r t o b r i d g e t h e
s h o r t a g e of f o r e i g n exchange e x i s t i n g a t the Y360
r a t e by c o n t r o l l i n g i m p o r t s . The b u d g e t c l a s s i f i e d
i m p o r t a b l e goods i n t o t h r e e c a t e g o r i e s : fund
a l l o c a t i o n ( w h i c h became i m p o r t q u o t a s a f t e r 1964),
a u t o m a t i c f u n d a l l o c a t i o n ( w h i c h became a u t o m a t i c
i m p o r t q u o t a s ) , a n d a u t o m a t i c a p p r o v a l . The import
d e p o s i t s c h e m e , w h i c h was i n o p e r a t i o n u n t i l 1969,
r e q u i r e d d e p o s i t of c o l l a t e r a l f o r imports a t the
t i m e p e r m i s s i o n t o i m p o r t was r e q u e s t e d ; t h e
c o l l a t e r a l was f o r f e i t e d i f t h e i m p o r t a t i o n was not
e x e c u t e d . The r a t e s o f c o l l a t e r a l w e r e
d i f f e r e n t i a t e d by c a t e g o r y o f goods (raw m a t e r i a l s ,
c o n s u m p t i o n g o o d s , c a p i t a l e q u i p m e n t , and so
f o r t h ) . In a d d i t i o n t o the prime o b j e c t i v e of
l i m i t i n g imports t o the a v a i l a b i l i t y of f o r e i g n
exchange, these p o l i c i e s r e s t r a i n e d s p e c u l a t i o n i n
i m p o r t e d c o m m o d i t i e s and d i s c r i m i n a t e d a g a i n s t t h e
i m p o r t a t i o n o f c o n s u m p t i o n g o o d s . The i m p o r t d e p o s i t
scheme a c t i n g t h r o u g h t h e c r e d i t s y s t e m a l s o
r e i n f o r c e d a n a n t i c y c l i c a l m o n e t a r y p o l i c y " ( H u g h T.
P a t r i c k & H e n r y R o s o v s k y , op. cit., p. 4 1 2 ) .
8 6
T h i s q u o t a t i o n i s a summary o f I s h i m a r u ' s e x p l a n a t i o n
t r a n s l a t e d i n t o E n g l i s h by t h e a u t h o r . Y o s h i t o m i I s h i m a r u ,
Endaka to Nihon Keizai (Tokyo: M a i n i c h i Shinbunsha, 1978),
pp. 71-73.
8 7
A t t h e S m i t h s o n i a n C o n f e r e n c e h e l d f r o m D e c e m b e r 17 t o 1 8 ,
1971, t h e f o l l o w i n g m a t t e r s were d e c i d e d :
( 1 ) T h e p r i c e o f g o l d was r a i s e d f r o m 35 U.S.
d o l l a r s t o 38 d o l l a r s p e r o u n c e . Y e t t h e
c o n v e r t i b i l i t y o f t h e U.S. d o l l a r i n t o g o l d was not
restored.
(2) The e x c h a n g e r a t e s o f m a j o r c u r r e n c i e s t o t h e
U.S. d o l l a r w e r e r a i s e d ( s e e T a b l e 3-8 a n d 3-9).
( 3 ) T h e f l u c t u a t i o n r a n g e was e x p a n d e d t o 2 . 2 5 % .
 52

dollars in surplus and the t o t a l b a l a n c e was 7,677 million

dollars in surplus.

Even the S m i t h s o n i a n a g r e e m e n t was not a b l e to keep the

international c u r r e n c y system stable. Major industrialized

countries shifted one by one to the floating exchange rate

system. 8 8
The "dollar drain," one of the causes of the

collapse of the international monetary system accompanied by

the food shortage problem, increased inflationary pressures

in major industrialized countries. 8 9

U c h i n o e x p l a i n s the process of going i n t o the f l o a t i n g

8 8

system as f o l l o w s :
"... The U n i t e d K i n g d o m s h i f t e d t o t h e f l o a t i n g
e x c h a n g e r a t e s y s t e m i n J u n e 1972 a n d d e v a l u e d t h e
pound, b u t t h i s had been n e c e s s i t a t e d by t h e pound
being o v e r v a l u e d at the time of the agreement. . . .
. . . F i n a l l y , on M a r c h 1 2 , ( 1 9 7 3 ) , W e s t G e r m a n y
announced a 3 p e r c e n t upward r e v a l u a t i o n of the
m a r k , a n d t h e EC c o u n t r i e s ( w i t h t h e e x c e p t i o n s o f
E n g l a n d , I r e l a n d , and I t a l y ) announced a " j o i n t
f l o a t i n g exchange r a t e system," under which they
would m a i n t a i n f i x e d exchange r a t e s between
c o m m u n i t y members b u t w o u l d a l l o w t h e i r c u r r e n c i e s
to f l o a t against the d o l l a r .
T h e s e moves s i g n a l e d t h e end of t h e S m i t h s o n i a n
Agreement, o n l y f o u r t e e n months a f t e r the meeting of
t h e G r o u p of t h e Ten i n W a s h i n g t o n . A f t e r J a p a n
f l o a t e d t h e yen i n F e b r u a r y 1973, i t s v a l u e
i n c r e a s e d r a p i d l y a g a i n s t the d o l l a r , and t h e d o l l a r
d r o p p e d b e l o w t h e Y280 l e v e l i n t h e s e c o n d h a l f o f
J u l y " ( T a t s u r o U c h i n o , op. cit., pp. 193, 1 9 5 ) .
U c h i n o e x p l a i n s the f o o d s h o r t a g e p r o b l e m as f o l l o w s :
8 9

"Shortage and subsequent p r i c e i n c r e a s e s began t o

a p p e a r i n t h e f a l l o f 1972. . . . The abnormal
weather c o n d i t i o n s a f f e c t e d soybeans, c o r n , sorghum,
c o f f e e , s u g a r , a n d raw c o t t o n . The m o s t d r a s t i c
i n c r e a s e s , h o w e v e r , were r e c o r d e d f o r s o y b e a n s a n d ,
f o r t h e J a p a n e s e p e o p l e , t h i s was particularly
a l a r m i n g . Soybeans t r i p l e d i n p r i c e i n the space of
o n e y e a r , f r o m $3 p e r b u s h e l t o $ 1 1 . W i t h a v i c i o u s
c y c l e between worldwide s h o r t a g e s i n g r a i n s u p p l i e s
a n d t h e s p r e a d o f s p e c u l a t i o n on i n t e r n a t i o n a l
m a r k e t s , t h e N i x o n a d m i n i s t r a t i o n a n n o u n c e d a new
s e t o f r e s t r i c t i o n s on g r a i n e x p o r t s a s a p a r t o f
its anti-inflation policy, prohibiting soybean
e x p o r t s t o J a p a n b e c a u s e o f s o a r i n g d o m e s t i c demand"
 53

The yen a p p r e c i a t i o n h a d many impacts on t h e J a p a n e s e

economy. F i r s t , i n the yen a p p r e c i a t i o n process the Japanese

monetary authority, t h e Bank o f J a p a n , increased monetary

liquidity. The e x c e s s - l i q u i d i t y p r o b l e m ledto inflationary

pressure i n Japan. Secondly, t h e Tanaka cabinet, succeeding

the Sato cabinet i n June 1972, a d o p t e d expansionary economic

policies i n order to battle the deflationary e f f e c t s of the

yen appreciation. 9 0
Thirdly, some industries lost their

international competitive power because of the yen

appreciation.

It i s an i m p o r t a n t fact that most i n d u s t r i a l i z e d

countries, i n c l u d i n g Japan, suffered from i n f l a t i o n a r y

pressures before t h e 1973 o i l c r i s i s . Nevertheless, the

Japanese government adopted expansionary economic policies.

It i s also important that the yen a p p r e c i a t i o n i s recognized

as the f i r s t challenge t o Japanese industry while the o i l

crisis i s recognized as the second challenge. As previously

stated, Japan's economic goals were r e a l i z e d m a i n l y by t h e

expansion of foreign trade. The e x c h a n g e rate o f t h e y e n was

one of t h e key elements which enabled Japan t o expand i t s

trade. Just a f t e r Japan had faced a change i n t h e exchange

rate, the country had t o face a change i n another key

element, the price ofo i l .

( c o n t ' d ) ( T a t s u r o U c h i n o , op.
8 9
cit., p. 198-199).
T h e T a n a k a c a b i n e t i n c r e a s e d t h e 1972 n a t i o n a l b u d g e t b y
9 0

18.7% f r o m t h e 1971 l e v e l .
 54

2. THE I M P A C T S OF THE 1 9 7 3 O I L C R I S I S AND J A P A N ' S ECONOMIC

REACTION

(1) The Impacts of t h e C r i s i s on t h e J a p a n e s e and W o r l d

Economy

A. The Impacts on t h e J a p a n e s e Economy

As referred to i n the previous section, the

inflationary trend i n Japan h a d been s t r e n g t h e n e d by t h e

change i n the international economic situation s y m b o l i z e d by

the "Nixon shock." The d r a s t i c increases i n o i l prices,

which a r e shown i n Table 3-10, i n f l u e n c e d the wholesale

price and consumer price indices a s shown i n Table 3-11.

According t o t h e Economic P l a n n i n g Agency (EPA) o f Japan,

"the wholesale price from January t o March o f 1974 i n c r e a s e d

by 35.4% from t h e same p e r i o d of 1973. Around 40% of t h e

increase i sexplained by t h e d o m e s t i c imbalance between

supply a n d demand, a n d 6 0 % i s e x p l a i n e d by t h e i n c r e a s e i n

the p r i c e of primary products including o i l . " 9 1

I n December

1973 t h e Japanese government finally implemented an

aggregate demand reduction policy including the constraint

of t h e 1974 b u d g e t and t h e increase of the o f f i c i a l interest

rate from 7% t o 9%. A s a r e s u l t , depressionary pressure

increased i n the inflationary circumstance.

The o i lprice increase also caused a deficit i n Japan's

international payments. The EPA p o i n t s out five elements

which caused the deficit i n international payments. They

9 1
J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Keizai Houkoku,
1974 ( T o k y o : M i n i s t r y o f F i n a n c e ) , p . 78 ( S u m m a r y
t r a n s l a t i o n by t h e a u t h o r ) .
 55

were t h e supply/demand element, the o i l p r i c e element, the

exchange rate adjustment element, the s t r u c t u r a l element,

and the special element. The EPA's e x p l a n a t i o n of each

element i s summarized as follows:

1. T h e s u p p l y / d e m a n d element:
The e x p a n s i o n a r y e c o n o m i c s i t u a t i o n i n E u r o p e
and t h e U n i t e d S t a t e s c a u s e d t h e w o r l d - w i d e
i n f l a t i o n a r y t r e n d and i n c r e a s e i n the p r i c e of
p r i m a r y p r o d u c t s . The e x p a n s i o n a r y s i t u a t i o n c a u s e d
the i n c r e a s e i n Japan's e x p o r t s t o Europe and t h e
U n i t e d S t a t e s . On t h e o t h e r h a n d , h o w e v e r , t h e
i n c r e a s e i n the p r i c e of p r i m a r y p r o d u c t s caused the
i n c r e a s e i n t h e v a l u e o f J a p a n ' s i m p o r t s . The
d e f i c i t i n Japan's i n t e r n a t i o n a l payments i s p a r t l y
e x p l a i n e d by t h e f a c t t h a t t h e i n c r e a s e i n t h e v a l u e
of i m p o r t s e x c e e d e d t h a t o f e x p o r t s .

2. T h e o i l p r i c e e l e m e n t :
Since the o i l p r i c e increased d r a s t i c a l l y i n
O c t o b e r and November 1973, t h e v a l u e o f J a p a n ' s
imported o i l i n c r e a s e d from the b e g i n n i n g of 1974
d e s p i t e the decrease i n the q u a n t i t y of o i l
i m p o r t e d . The p e r c e n t a g e o f o i l i m p o r t s i n J a p a n ' s
t o t a l i m p o r t s b y v a l u e was 1 5 % w h e r e a s t h e
p e r c e n t a g e s o f o t h e r i n d u s t r i a l c o u n t r i e s were 10%
b e f o r e t h e o i l c r i s i s . The p e r c e n t a g e f o r J a p a n
i n c r e a s e d t o 30% a f t e r the c r i s i s .

3. The e x c h a n g e r a t e a d j u s t m e n t e l e m e n t :
T h e y e n a p p r e c i a t i o n s i n c e F e b r u a r y 1973 c a u s e d
the i n c r e a s e i n the v a l u e of Japan's e x p o r t s .
However, the yen a p p r e c i a t i o n had a n e g a t i v e e f f e c t
on t h e q u a n t i t y o f e x p o r t s . T h e d e f i c i t i n
i n t e r n a t i o n a l payments i s p a r t l y e x p l a i n e d by t h e
f a c t t h a t t h e l a t t e r e f f e c t of t h e yen a p p r e c i a t i o n
exceeded the former e f f e c t .

4. The s t r u c t u r a l e l e m e n t :
The d e f i c i t i s p a r t l y e x p l a i n e d by s t r u c t u r a l
change i n Japanese economic a c t i v i t i e s . For
instance, the increase i n outgoing f o r e i g n
investments caused the increase i n c a p i t a l outflow.

5. The s p e c i a l e l e m e n t :
The d e f i c i t i s p a r t l y e x p l a i n e d by t h e s p e c i a l
element. For i n s t a n c e , the n a t u r a l c l i m a t e change i n
1972 c a u s e d t h e f o o d s h o r t a g e p r o b l e m a n d t h e
increase i n the p r i c e of primary p r o d u c t s . 9 2

9 2
Ibid., pp. 35-40.
 56

The effects of the o i l p r i c e increase on the Japanese

economy resulted in further acceleration of inflation as

well as economic recession and the increase i n the deficit

in international payments.

B. The Impacts on the World Economy

In order to understand the impact of t h e c r i s i s on

Japan, i t s i m p a c t s on the world economy a r e reviewed in this

section. This i s not only because the i m p a c t s on each

country are interrelated but a l s o because the comparative

assessment of the i m p a c t s on each country shows the

implication of the c r i s i s for Japan.

Even though Japan experienced a temporary negative

economic growth because of the 1973 o i lc r i s i s , there were

some c o u n t r i e s whose economic growth rates d i d not decrease

s o m u c h . T a b l e 3-12 shows t h e g r o w t h in real GNP in

industrialized countries. Such countries as Canada, France,

Germany and Italy suffered less than Japan from the crisis

as f a r as their economic growth rates w e r e c o n c e r n e d . On the

other hand, Japan, the United States and the United Kingdom

showed a s i m i l a r short-term decline in their economic growth

rates. T a b l e 3-13 shows t h e w h o l e s a l e p r i c e indices of major

industrial countries. The 1973 o i lcrisis raised the

wholesale prices of a l l the major countries. However, the

wholesale price index of Japan stopped i t s rapid increase

after the o i lc r i s i s whereas t h o s e of most o t h e r countries

continued to increase.
 57

As f a r as the balance of i n t e r n a t i o n a l payments was

concerned, however, there was a t r a n s f e r o f p u r c h a s i n g power

from the industrialized countries t o OPEC c o u n t r i e s a s s h o w n

in Table 3 - 1 4 . I n 1 9 7 4 , OPEC c o u n t r i e s showed a huge surplus

in trade and current balances, while OECD c o u n t r i e s h a d

deficits i n both indicators. The d e f i c i t s o f OECD countries

in their current balance a r e shown i n T a b l e 3-15.

M o r e o v e r , a s shown i n Table 3 - 1 6 , OPEC countries

rapidly increased their f o r e i g n exchange reserves. These

reserves increased from 10% o f t h e w o r l d total i n 1972 t o

30% i n 1974. As a r e s u l t , the o i l c r i s i s caused changes i n

the i n t e r n a t i o n a l economic order a n d new p r o b l e m s such as

recycling of o i l dollars.

(2) M a j o r Changes i n the Japanese Economic Situation

As mentioned i n the previous s e c t i o n s , t h e most

important phenomenon c a u s e d b y t h e 1973 o i l c r i s i s was

inflation. The f i r s t thing t o be d i s c u s s e d i n this part i s

how t h e i n f l a t i o n caused by t h e c r i s i s was m o d e r a t e d during

1974 and 1975. T a b l e 3-11 c o n t a i n s major economic indicators

during t h e p e r i o d . An i m p o r t a n t r e l a t i o n s h i p t o note i s that

the wholesale p r i c e index declined steadily while the

consumer p r i c e index stayed high.

 58

Impacts of the i n f l a t i o n caused by t h e " N i x o n shock"

and accelerated b y t h e o i l c r i s i s c a n be a n a l y s e d i n t e r m s

of two t r e n d s . First, the inflation heightened the

propensity t o save and d e c r e a s e d consumption demand.

Secondly, the inflation l e d t o a decrease i n plant and

equipment investments.

The first trend i s explained by t h e Economic Planning

Agency as f o l l o w s . 9 3
According to calculations by t h e EPA,

the growth rate of individual consumption e x p e n d i t u r e was

only 2.3% i n 1974, w h i c h was l o w e r t h a n the previous record

of 4.8% i n 1 9 5 4 . The EPA p o i n t s o u t two r e a s o n s f o r the

decrease: a) t h e decrease i n the growth rate of real income,

and b) t h e d e c r e a s e i n the propensity t o consume. The growth

rate of real income declined from 5.3% i n 1972-73 t o 4.1%i n

1973-74 w h i l e that of nominal income rose from 13.8% t o

26.8%. Concerning the propensity t o consume, t h e growth rate

of real consumption expenditures declined from 4.3% i n

1972-73 t o 1.1% i n 1973-74, w h i l e that of real disposable

income declined from 5.3% t o 4.1%.

The inflation during and a f t e r the o i lc r i s i s exerted

impacts not only on t h e g r o w t h rate of real income but also

on the propensity t o consume. The r e l a t i o n s h i p between

inflation and the propensity t o save i s related t o two

factors. First, the inflation decreased the real value of

savings and accordingly induced consumers t o increase their

savings t o compensate f o rthe decrease of r e a l value of

J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji
9 3
Keizai Houkoku,
1975 (Tokyo: M i n i s t r y o f F i n a n c e , 1975), pp. 35-44.
 59

their savings. Secondly, the uncertainty of employment

caused by the economic d e p r e s s i o n made p e o p l e refrain from

consumption.

The second trend following the post-"Nixon shock"

inflation i s e x p l a i n e d as follows. * 9
The decrease in plant

and equipment investment was mainly caused by the aggregate

demand reduction policy by means o f restricting fiscal

spending, investment outlays of companies, and consumers'

spending. The EPA points out three basic elements in the

process of decreasing private investments. F i r s t , the

decrease i n consumption expenditure caused the decrease in

private i n v e s t m e n t s m a i n l y by the service industry.

Secondly, the decrease in private investments themselves led

to a decrease i n p r o d u c t i o n and investment by the industries

producing capital goods such as machines and non-ferrous

metals. (Such industries as steel and c h e m i c a l s were not

affected so much in this respect because they were o p e r a t i n g

with long-term investment plans.) Thirdly, the increase in

investment costs l e d to a decrease in private investments.

As a result, private investment decreased i n response to the

1973 o i l crisis.

Japan's t r a d e b a l a n c e was also influenced by the rapid

increase in o i lprices. For instance, Japan's o i l payments

in 1974 increased to 13.7 billion dollars owing to the o i l

price increase. As a result, the t r a d e b a l a n c e moved into a

deficit i n the January-March period of 1974.

9
*Ibid., PP.44-50
 60

However, Japan recovered from the trade deficit and

actually expanded into a trade surplus from the April-June

period o f 1974. A c c o r d i n g t o t h e EPA, t h e r e c o v e r y i s

explained by t h e f a c t that the increase i n the value of

imports was c o m p e n s a t e d f o r by t h e i n c r e a s e i n the value of

exports and the decrease i n the q u a n t i t y of imports. Even

though the increase i n import value contained price

increases of not only o i l but a l s o other imported goods, t h e

oil price increase explained t w o - t h i r d s of the i n c r e a s e i n

the total import value from the January-March period t o the

April-June p e r i o d o f 1974. The peak of the increase i n

import values occurred i n the October-December p e r i o d of

1974. The increase i n the import value was m a i n l y offset by

the increase i n export prices until the July-September

period o f 1974. A f t e r this the i n f l u e n c e of the decrease in

the q u a n t i t y of imports became s t r o n g . From A p r i l 1975 t h e

influence of the increase i n the q u a n t i t y of exports became

strong.

The economic recession, started i n the January-March

period o f 1974, r e a c h e d i t s bottom i n the January-March

period o f 1975. The J a p a n e s e economy s h i f t e d into the

recovery process from the second quarter o f 1974. The

recovery was realized by t h e i n v e n t o r i e s a d j u s t m e n t on t h e

private s i d e and the monetary relaxation and government

spending expansion policy on t h e p u b l i c side.

 61

(3) M a j o r Changes in Japanese Industry

In discussing major changes i n Japanese industry,

special attention should be p a i d to the following points.

First, there were d i f f e r e n c e s between the reaction of the

oil supplying and consuming i n d u s t r i e s t o t h e 1973 o i l

crisis. Since this chapter mainly reviews the process of

Japan's economic recovery from t h e c r i s i s , i t discusses the

situation of o i l consuming industries with respect to their

efforts t o recover from the c r i s i s . Secondly, a general

change i n Japanese industry has already been d i s c u s s e d in

the previous sections. Therefore, some u n i q u e a s p e c t s of the

change a r e d i s c u s s e d i n this section.

As discussed i n previous sections, the influence of the

crisis on J a p a n e s e industry differed between industrial

sectors. Japanese industrial sectors are categorized into

three groups. The f i r s t group includes the industries which

suffered most severely from the c r i s i s and had t o focus

their efforts on d e c r e a s i n g production capacities or

changing their basic strategy. The s e c o n d group includes

those that suffered severely, b u t managed t o overcome t h e

damage from t h e c r i s i s by means o f p u b l i c and p r i v a t e

policies. The t h i r d group includes those that increased

their c o m p a r a t i v e a d v a n t a g e a n d grew b e c a u s e of the c r i s i s .

 62

A. Depressed Industries 9 5

Petrochemicals: The petrochemical industry of Japan,

which e n j o y e d an economic boom b e c a u s e of the o i l p r i c e

increase caused by the c r i s i s , started to suffer from

economic d e p r e s s i o n from the l a t t e r part of 1974. For

instance, the p r o d u c t i o n of ethylene, which was a basic

material f o r the petrochemical i n d u s t r y , recorded zero

growth i n the period f o r the first time since i t s first

production i n J-apan i n 1958. In a d d i t i o n , many schemes of

capital i n v e s t m e n t and overseas projects were c a n c e l l e d or

postponed. 9 6
Due t o i t s heavy d e p e n d e n c e on o i l ,

petrochemicals became one of the slump ridden industries of

Japan.

Aluminum: Another example of a slump ridden industry

was the aluminum industry. After the 1973 o i lcrisis the

Japanese aluminum industry proposed an increase of aluminum

prices t o the government. There were two reasons f o r the

price increase in this proposal. The first was the price

increase of e l e c t r i c i t y caused by the o i l p r i c e increase.

Another was the decrease i n the level of o p e r a t i o n s caused

by the reduced supply of o i l . In 1974 the proposal was

accepted, but a t t h e same t i m e , t h e a l u m i n u m industry

experienced a n e g a t i v e growth f o r the first time. The

9 5
T h e c l a s s i f i c a t i o n h a s b e e n d e c i d e d by t h e a u t h o r . The
situation o f e a c h i n d u s t r y i s b a s e d on t h e d e s c r i p t i o n i n
Asashi Nenkan, 1975 (Tokyo: A s a h i S h i n b u n s h a , 1975), pp.
364-376.
9 6
T h e p o s t p o n e d schemes i n c l u d e d o m e s t i c e t h y l e n e f a c t o r i e s
w h i c h w e r e a l r e a d y a p p r o v e d by M I T I . The p e t r o l e u m c o m p l e x
t o b e b u i l t i n T h a i l a n d b y M i t s u b i s h i a n d M i t s u i was o n e o f
s c h e m e s c a n c e l l e d . Ibid., pp. 374-375.
 63

aluminum industry, which i s dependent on o i l i n d i r e c t l y b u t

heavily, became a slump ridden industry.

Shipbuilding: The s h i p b u i l d i n g industry was also

depressed by t h e o i l c r i s i s . The h i g h e s t record in launching

newly constructed ships occurred i n 1974 w h e n t h e t o t a l

amount of ships launched was 17.5 m i l l i o n tons, a 11.6%

increase over the l e v e l i n 1973. The J a p a n e s e shipbuilding

industry's share i n the world's t o t a l amount of launched

ships was 5 2 . 1 % . On the other hand, however, the decrease i n

the transportation o f o i l due to the o i l c r i s i s accelerated

the over-supply situation i n the world tanker market. The

catch-up by n e w l y industrialized countries (NICs) also

decreased the market share of the Japanese shipbuilding

industry. As a r e s u l t , t h e amount of received orders f o r new

ships decreased from 35.0 m i l l i o n tons i n 1973 t o 12.8

million tons i n 1 9 7 4 . Some l a r g e contracts were

cancelled. 9 7

B. D e p r e s s e d but Surviving or Revived Industries

Steel: The J a p a n e s e steel industry also suffered from

the o i l crisis b u t went t h r o u g h i t more successfully than

the three i n d u s t r i e s mentioned above. Several elements

contributed to i t s relative success. The main element was

that the steel industry was a b l e t o pass the cost impact of

the crisis on t h e i r own inputs on t o t h e p r i c e s of their

9 7
T h e c a n c e l l e d c o n t r a c t s i n c l u d e d one w i t h M i t s u i
S h i p b u i l d i n g f o r a 136 t h o u s a n d t o n t a n k e r o r d e r e d b y a
L i b e r i a n s h i p - o w n e r . Ibid., p. 371.
 64

products. The industry proposed t o MITI that the price of

steel products should be raised, ranging from 18% to 24% for

different products. MITI allowed an average 16.9% price

increase. This fact shows t h a t the s t e e l market as well as

the steel industry were under public control to some extent.

The control included an agreement on the suspension of

capital investments during 1972 and 1973 to avoid

over-production i n the economic recession caused by the

"Nixon shock." On the other hand, the value of Japanese

steel exports increased from 6.3 billion in 1973 to 12.0

billion in 1974 due to the world-wide s t e e l shortage in

early 1974. This was one example of a case where public

intervention moderated the influence of the o i l crisis and

the world market s i t u a t i o n helped the industry to recover

from the crisis. In addition, the Japanese steel industry

implemented a strategy of increasing overseas investments in

order t o make u s e of local natural resources and o i l

dollars. 9 8

Machine t o o l s : The Japanese machine tool industry was

an example of an industry which adopted the strategy of

recovering from the crisis by increasing i t s exports. The

machine tool industry mainly suffered from the demand-side

effect of the o i l crisis through the decrease i n the demand

for machines. For instance, the c a n c e l l a t i o n of contracts by

such i n d u s t r i e s as the automobile industry increased the

inventory of machine t o o l s to 21,664 i t e m s , w h i c h was twice

9 8
T h e investments include Nippon Steel's in Australia, and
K a w a s a k i S t e e l ' s i n B r a z i l . Ibid., p. 364.
 65

as many a s t h e m o n t h l y level of p r o d u c t i o n . As a r e s u l t , t h e

rate of operation i n the industry decreased t o 60% of i t s

usual level o f o p e r a t i o n . On t h e o t h e r h a n d , t h e e x p o r t

ratio of t o t a l orders i n c r e a s e d from 2 8 . 2 % i n 1973 t o 3 4 . 0 %

in 1975. The J a p a n e s e machine tool industry recovered from

the economic recession i n the early 1970's a s b o t h s t e e l and

automobile industries recovered. In the process of recovery

the industry's export ratio i n c r e a s e d t o 44.4% i n 1 9 7 8 . "

C. G r o w i n g Industries

Automobiles: The J a p a n e s e automobile industry was n o t

an exception to the l i s t of industries suffering from t h e

oil crisis. I t recorded a n e g a t i v e growth i n 1974. B e s i d e s

the increase i n the gasoline price, t h e r e was a l s o a n

increase i n a u t o m o b i l e - r e l a t e d taxes which decreased the

domestic demand f o r cars. However, domestic demand started

growing again i n 1975 a s t h e r e s t r a i n t of consumers during

the c r i s i s became m o d e r a t e d . M o r e o v e r , since small,

economical Japanese c a r s became e v e n more p o p u l a r i n

overseas markets, c a r e x p o r t s i n c r e a s e d from 2.0 m i l l i o n i n

1973 t o 2.7 m i l l i o n i n 1975. The Japanese automobile

industry was a n e x a m p l e a n i n d u s t r y which eventually

benefitted greatly from the o i l c r i s i s .

Electronics; The J a p a n e s e electronics industry also

suffered initially from t h e economic recession caused by t h e

oil crisis. For instance, the decrease i n domestic sales and

"Asahi Nenkan, 1980 (Tokyo: Asahi Shinbunsha, 1985), p.

346.
 66

exports of TV s e t s due to consumer's initial pessimism and

restraint c a u s e d a 40% d e c r e a s e i n t h e demand f o r e l e c t r o n i c

p a r t s . As a r e s u l t , short-term p o l i c i e s such as factory

closure and early retirement were i n t r o d u c e d i n many

firms. 1 0 0
However, s t a r t i n g i n 1975, t h e demand f o r c o l o u r

TV sets increased again both i n Japan and a b r o a d , and the

o p e r a t i o n s o f major electronics companies expanded. In

addition, the p r o d u c t i o n of t a b l e calculators increased from

15 m i l l i o n i n 1974 t o 32 m i l l i o n i n 1975. Micro-computers

a l s o appeared i n t h e e l e c t r o n i c s market around 1975. In

spite o f t h e s e t b a c k of t h e o i l c r i s i s , the Japanese

electronics industry, because of i t s s a l e s volumes and cost

efficiencies, became one of the industries i n which Japan

enjoyed a comparative advantage.

It has a l r e a d y been pointed out i n the second section

of this chapter that t h e r e was a quantitative shift from

secondary to t e r t i a r y industry after the 1973 o i l crisis.

The examples introduced above have shown t h a t the s h i f t in

the Japanese industrial s t r u c t u r e was related to the level

of energy which each industry had used. Indeed, the o i l

price increase forced both high e n e r g y and p e t r o c h e m i c a l

material industries and a l s o industries which used the

p r o d u c t s of t h o s e d i r e c t user industries to rationalize

their production p r o c e s s e s . The efforts o f t h e machine tool

M a t s u s h i t a E l e c t r i c s e n t 2,000 e m p l o y e e s as a s s i s t a n t s
1 0 0
to
r e t a i l i n g s h o p s . Sanyo and S h a r p a l s o s e n t 370 and 65
employees r e s p e c t i v e l y . Asahi Nenkan, 1975 ( T o k y o : A s a h i
S h i n b u n s h a , 1975), p . 368.
 67

industry t odecrease their material costs l e d t o decreases

in their demand for inputs. In turn, the direct user

industries suffered n o tonly from the increase i n their

production costs butalso from the decrease i n t h e demand

for their products. This shift i nthe Japanese industrial

structure was a c c e l e r a t e d by t h er e a c t i o n o f each industry

to t h e 1973o i l c r i s i s .

3. T H E C H A R A C T E R I S T I C S OF T H E J A P A N E S E ECONOMIC R E A C T I O N TO

THE O I L C R I S I S

In investigating the characteristics o f Japan's

economic r e a c t i o n t o t h e 1973o i l c r i s i s , twobasic economic

elements c a n be d i s c e r n e d . One was t h e c o u n t r y ' s economic

vulnerability andthe other was i t s economic e f f i c i e n c y . As

reviewed i np r e v i o u s s e c t i o n s , Japan's high dependence on

oil, particularly imported oil, was a major cause of the

country's economic vulnerability. This point became c l e a r i n

the 1973o i l c r i s i s . Within Japan i t was g e n e r a l l y argued

that Japan should decrease i t s economic vulnerability. 1 0 1

The impacts of the o i l c r i s i s would n o t have been so serious

if Japan hadsucceeded earlier i nd e c r e a s i n g i t s

vulnerability. Many people c r i t i c i z e d the policy of high

M o t o o K a j i , P r o f e s s o r o f Tokyo U n i v e r s i t y , a n d o i l
1 0 1

s p e c i a l i s t s from Japanese companies p u b l i s h e d a r e p o r t i n

1969 i n w h i c h t h e y p o i n t e d o u t t h e v u l n e r a b i l i t y o f J a p a n
due t o i t s h i g h d e p e n d e n c e o n M i d d l e E a s t o i l a n d d i s c u s s e d
l o n g term supply/demand schemes on o i l i nt h e P a c i f i c r e g i o n
( s e e M o t o o K a j i , e d . , Asia Taiheiyo ni okeru Seki yu Jukyu no
Kozo [ T o k y o : A s i a K e n k y u j o , 1969]).
 68

dependence on M i d d l e E a s t o i l as the c a u s e of confusion when

the 1973 o i l crisis occurred. Among them, p e o p l e from the

coal industry strongly c r i t i c i z e d i t because that industry

had become d e p r e s s e d due t o the earlier rapid increase in

oil imports. For i n s t a n c e , K i c h i t a r o H a g i w a r a , one of the

business leaders i n the Japanese c o a l industry, stated:

The most s e r i o u s m i s t a k e the government made was

t h a t t h e y t h o u g h t t h e o i l s u p p l y from t h e M i d d l e
E a s t w o u l d c o n t i n u e f o r e v e r . They had not recognized
t h a t M i d d l e E a s t o i l w o u l d n o t c o n t i n u e t o be
i n e x p e n s i v e u n t i l t h e 1973 o i l c r i s i s o c c u r r e d ,
whereas o t h e r i n d u s t r i a l i z e d c o u n t r i e s had a l r e a d y
recognized this d a n g e r . " 1 0 2

At the same t i m e , H a g i w a r a h i g h l y commended t h e policies of

the United Kingdom and West Germany i n m a i n t a i n i n g their

coal i n d u s t r y as an a l t e r n a t i v e energy source. 1 0 3

On the other hand, i t i s also true that Japan

accomplished i t s high r a t e of economic growth p a r t l y because

of its utilization of the inexpensive supply of o ' i l from the

Middle East. For instance, Saburo O k i t a comments:

The f a c t t h a t J a p a n i s i m p o r t i n g a l a r g e amount of
p e t r o l e u m from the M i d d l e E a s t now does n o t p r e s e n t
much o f a h a n d i c a p t o o t h e r i n d u s t r i a l n a t i o n s . In
t h e p a s t , a l a c k of raw m a t e r i a l s i n the h o m e l a n d
was a l w a y s r e g a r d e d a s a g r e a t d i s a d v a n t a g e t o t h e
economy. But more r e c e n t l y t h e l a c k of raw m a t e r i a l s
a t home and t h e c o r r e s p o n d i n g need t o i m p o r t
m a t e r i a l s f r e e d t h i s c o u n t r y from t h e d i s a d v a n t a g e
o f use of uneconomic raw m a t e r i a l s w h i c h c o u l d have
been n e c e s s i t a t e d by t h e p r o t e c t i o n of d o m e s t i c
i n d u s t r i e s p r o d u c i n g raw m a t e r i a l s . Thus, t h e l a c k
o f i n d i g e n o u s n a t u r a l r e s o u r c e s has t u r n e d i n t o one
of the f a v o r a b l e f a c t o r s s u p p o r t i n g r a p i d economic
growth.. 1 0 4

K a n i c h i Kondo & H i r o s h i O s a n a i , op.

1 0 2
cit., pp. 105-106
(Summary t r a n s l a t i o n by t h e a u t h o r ) .
i ° I b i d . , pp. 104-105.
3

S a b u r o O k i t a , Japan
1 0 < t
in the World Economy (Tokyo: The
J a p a n F o u n d a t i o n , 1975), pp. 62-63.
 69

It was reasonable f o r Hagiwara, as a person involved i n the

coal industry which suffered from the "energy revolution,"

to criticize the government energy p o l i c y . However, i t is

important to note that Japan might well have been unable to

accomplish such a h i g h rate of economic growth i f i t had

maintained i t s coal industry as t h e U n i t e d Kingdom and West

Germany d i d . The Japanese economy d e v e l o p e d by increasing

its economic e f f i c i e n c y at the risk of increasing i t s

vulnerability to supply disruptions.

In summary, t h e r e f o r e , the economic influence of the

1973 o i lcrisis on Japan shows t h a t i t was not always wise

to increase economic e f f i c i e n c y at the risk of increasing

economic v u l n e r a b i l i t y . However, Japan managed to recover

from the c r i s i s . The examination of the Japanese economic

reaction t o the o i lcrisis in t h i s chapter suggests that the

recovery was made p o s s i b l e by the flexible and rapid

adjustment of some p a r t s of Japanese industry. Facing the

1973 o i lcrisis, such i n d u s t r i e s as p e t r o c h e m i c a l s and

shipbuilding, key industries i n the 1960's i n which the

government had intervened, became d e p r e s s e d industries. On

the other hand, the automobiles industry, which had fought

off government intervention, became a g r o w i n g industry. This

phenomenon indicated that the market mechanism worked more

effectively than government intervention. Indeed, government

intervention c a m e t o f o c u s on r e d u c i n g t h e damage of

depressed industries after the o i l c r i s i s .

 70

4. TABLES

T A B L E 3-1

ECONOMIC GROWTH R A T E S OF MAJOR C O U N T R I E S

- annual rate, % -
1950-1960 1960-1970 1970-1979

Canada 4.6 5.2 4.4

U.S. 3.2 3.9 3.2
Japan C 5 2 - ) 8.0 11.2 5.4
France 4.6 5.6 3.9
W.Germany 8.0 4.7 2.9
Italy C 5 1 - ) 5.5 5.7 3.0
U.K. C 5 2 - ) 3.1 2.8 2.2

Source: H i s a o K a n a m o r i , Koza Nihon Keizai, 2 vols.

( T o k y o : Chuo Keizaisha), 1 : 2 4 ; OECD, National Account
Statistics.
 71

TABLE 3-2

C O M P A R I S O N OF T A R G E T S S E T BY THE N A T I O N A L I N C O M E - D O U B L I N G
P L A N AND A C T U A L ECONOMIC PERFORMANCE

N a t i o n a l Income Actual Performance

Doubling Plan
Target Targeted Actual Actual
Levels f o r Growth levels for Growth
1 970 R a t e (%) 1970 R a t e (%)

-Total 10,222 0.9 10,372 1 .0

Population
(10,000)
-Persons 4,869 1 .2 5,094 1 .5
Employed
(10,000)
-Employees 3,235 4.1 3,306 4.3
(10,000)
-GNP ( 1 9 5 8 260,000 8.8 405,812 11.6
p r i c e s , 100
m i l l i o n yen)
-Gross National 213,232 7.8 328,516 11.5
Income (1958
p r i c e s , 100
m i l l i o n yen)
-Per C a p i t a 208,601 6.9 317,678 10.4
Income (1958
p r i c e s , yen)
-Personal 151,166 7.6 203,863 10.3
Consumption
Expenditures
(1958 p r i c e s ,
100 m i l l i o n
yen)
-Per C a p i t a 147,883 6.7 204,079 9.4
Personal
Consumption
Expenditures
(1958 p r i c e s ,
yen)
-Structural
Components o f
N a t i o n a l Income
(%)
(Primary 10.1 7.4
Industry)
(Secondary 38.6 38.5
Industry)
(Tertiary 51 .3 54. 1
Industry)
-Mining and 431 .7 1 1 .9 539.4 13.9
Manufacturing
Production
 72

-Agricultural, 1 44.1 2.8 130.3 2.1

Marine and
Forestry
Production
- T o t a l Demand 302,760 7.8 574,095 12.0
for Energy
( u n i t = 1,000
tons of coal)
-Value of 93.2 10.0 202.5 16.8
Exports (costum
clearing basis,
100 m i l l i o n
dollars)
-Value of 98.9 9.3 195.3 15.5
Imports (costum
clearing basis,
100 m i l l i o n
dollars)

S o u r c e : T a t s u r o U c h i n o , Japan's Postwar Economy (Tokyo:

Kodansha I n t e r n a t i o n a l L t d . , 1983), p. 112.

Notes:
1. G r o w t h r a t e s a r e i n c o m p a r i s o n t o t h e a v e r a g e f o r
1956-58.
2. F i g u r e s a r e b a s e d o n 1 9 5 8 p r i c e s .
3. F o r a l l i n d i c e s 1 9 5 8 = 1 0 0 .
 73

TABLE 3-3

HOUSEHOLD S A V I N G R A T E S OF MAJOR C O U N T R I E S

%
JAP. U.S. U.K. W.G. FRA. ITA.

1970 18.2 8.2 6.6 17.9 12.6 16.1

1971 18.0 8.3 4.7 17.0 13.5 23.4
1972 18.2 6.7 6.7 15.5 13.7 24.5
1973 20.9 8.9 8.1 14.0 14.2 23.9
1974 23.7 8.7 9.7 14.8 14.1 22.4
1975 22. 1 8.8 9.1 15.2 15.3 23.2
1976 22.4 7.1 8.1 13.4 12.9 22.9
1977 21.0 5.8 7.0 13.4 13.4 22.5
1978 20.6 5.4 9.0 13.3 14.4 23.7
1979 18.3 5.4 10.1 13.8 13.3 -
1980 5.7 — —

S o u r c e : H i s a o K a n a m o r i , Koza Ni hon K e i z a i , 2 vols.

(Tokyo: Chuo K e i z a i s h a , 1 9 8 2 ) , 1 :107.

N o t e : J A P . = J A P A N , U.S=UNITED S T A T E S , U.K.=UNITED
KINGDOM, W.G.=WEST GERMANY, F R A . = F R A N C E , I T A . = I T A L Y .
 74

TABLE 3-4

THE GROWTH OF J A P A N E S E FOREIGN TRADE

Value (million US d o l l a r s ) Ratio to the

previous
y e a r (%)

Exports Imports Balance Exports Imports

1961 4,236 5,810 -1 , 5 7 5 — 104.5 129.4

1 962 4,916 5,637 -720 116.1. 97.. 0
1963 5,452 6,736 -1,284 110.9 119.5
196*4 6,673 7,938 -1,264 1 22.4 117.8
1965 8,452 8, 169 283 162.7 102.9
1966 9,776 9,523 254 1 15.7 116.6
1967 10,442 11,663 -1,222 106.8 122.5
1968 12,972 12,987 -16 1 24.2 111.4
1969 15,990 15,024 966 1 23.3 115.7
1970 19,318 18,881 437 1 20.8 125.7
1 971 24,019 19,772 4,3.07 1 24.3 1 04.4
1 972 28,591 23,470 5, 120 119.0 1 1 9.. 1
1973 36,930 38,314 -1 , 3 8 4 1 29.2 163.2
1974 55,536 62 , 1 1 0 -6,5.75 — 150.4 162. 1
1975 55,753 57,863 -2,110 1 00.4 93.2

Source: Japan Tariff Association, Gai koku Boeki Gaikyo, July

1 985.
 75

TABLE 3-5

MAJOR J A P A N E S E T R A D E ITEMS

- million US d o l l a r s , ( s h a r e , %) -
IMPORT Total Petroleum, Petroleum Coal
crude & products
partly
defined

1970 18,881 2,236(11 .8) 550( 2 .9) 1 , 0 1 0 ( 5. 3)

1971 19,712 3.048(15 .5) 574( 2 .9) 1 , 0 0 5 ( 5. 1)
1972 23,471 3,923(16 .7) 539( 2 .3) 1 , 0 7 8 ( 4. 6 )
1973 38,314 6,000(15 .7) 726( 1 .9) 1 , 3 5 4 ( 3. 5 )
1974 62,110 18.898(30 .4) 2,263( 3 .6) 2 , 8 6 4 ( 4. 6 )
1 975 57,863 19,643(33 .9) 1 ,351( 2 .3) 3 , 4 5 4 ( 6. 0 )
1976 64,799 21 185(32
T .7) 2,101( 3 .2) 3 , 5 6 0 ( 5. 5 )
1 977 70,809 23,573(33 .2) 2,217( 3 .1) 3 , 5 4 7 ( 5. 0)
1 978 79,343 23,433(29 .5) 2,273( 2 .9) 3 , 0 7 7 ( 3. 9 )
1979 103,032 33,471(30 .2) 4,500( 4 .1) 3 , 5 4 9 ( 3. 2 )

EXPORT Total Motor Iron & steel Vessels

vehicles products

1970 19,318 1 , 3 3 7 ( 6.9) 2,844(14.7) 1 , 4 1 0 ( 7.3)

1971 24,019 2 , 3 7 3 ( 9.9) 3,542(14.7) 1 , 8 4 9 ( 7.7)
1972 28,591 2,029(10.4) 3,610(12.6) 2 , 3 9 9 ( 8.4)
1973 36,930 3 , 6 1 2 ( 9.8) 5,304(14.4) 3,819(10.3)
1974 55,536 5 , 2 2 7 ( 9.4) 10,758(19.4) 5,600(10.1)
1975 55,753 6,190(11.1) 10,176(18.3) 5,998(10.8)
1976 67,225 8,903(13.2) 10,485(15.6) 7,049(10.5)
1977 80,495 11,552(14.4) 10,519(13.1) 8,129(10.1)
1978 97,543 15,531(15.9) 11,855(12.2) 7 , 1 7 2 ( 7.4)
1979 110,672 17,021(16.5) 14,113(13.7) 3 , 8 6 9 ( 3.8)

Source: Japan T a r i f f A s s o c i a t i o n , Gaikoku Boeki Gai kyo,

September 1978, August 1981.
 76

TABLE 3-6

THE S H I F T I N THE J A P A N E S E POSTWAR INDUSTRIAL STRUCTURE

Share (%) Annual

growth
(average)
(%)
1960 1973 1977 1973 1977
/1960 /1 9 7 3

Nominal production
-Agriculture, forestry 8.2 3.7 3.9 8.7 13.6
& fishery(AFF)
-Mining 1.0 0.5 0.4 10.0 7.0
-Manufacturing 51.4 46.7 44.7 14.7 11.2
-Construction 8.3 13.0 10.0 19.7 5.3
-Service 27.2 32. 1 37.5 17.1 16.8
TOTAL 100.0 1 00.0 100.0 15.6 12.4
Real production
-AFF 10.5 3.4 3.6 1 .3 2.3
-Mining 0.8 0.5 0.4 7.4 -3.2
-Manufacturing 42.0 49.7 48.6 11.8 0.6
-Construction 8.5 10.7 10.0 12.4 -0.6
-Service 34.8 31 .9 33.8 9.6 2.6
-TOTAL 100.0 100.0 100.0 10.4 1.2
Real exports
-AFF 4.3 0.7 0.2 -2.3 -11.2
-Mining 0.0 0.1 0.0 17.9 -1 .7
-Manufacturing 75.1 79.8 84.4 13.4 17.2
-Construction 0.4 0.0 0.0 - -
-Service 15.9 15.4 13.4 12.6 11.8
TOTAL 100.0 1 00.0 100.0 12.9 15.6
Employees
-AFF 32.6 14.8 12.3 -4.4 -4.5
-Mining 1 .2 0.3 0.2 -9.9 -2.6
-Manufacturing 21 .8 26.9 25.7 3.2 -1.1
-Construction 6.1 8.7 8.9 4.3 0.7
-Service 38.2 49.3 52.8 3.6 1 .7
TOTAL 100.0 100.0 100.0 1 .6 0.0

S o u r c e : H i s a o K a n a m o r i , Koza Nihon Keizai, 2 vols.

( T o k y o : Chuo K e i z a i s h a , 1 9 8 2 ) , 1:48.
 77

TABLE 3-7

THE S H I F T I N J A P A N E S E ENERGY SUPPLY

- coal basis, 1,OOOt(1t=7x10 kcal) 6

( s h a r e , % ) , < i m p o r t r a t i o , %> -
Coal Petro. LNG Hydro Atomic Wood TOTAL

1900 6,733 523 7,749 15,005

(44.9) (3.5) (51.6)(100.0)
<1.5> <43.2> <2.8>
1910 14,176 767 157 4,526 19,624
(72.2) (3.9) (0.8) (23.1) (100.0)
<1.2> <46.0> <2.7>
1920 26,922 770 43 1 , 1 55 4,953 33,841
(79.6) (2.3) (0.1 ) (3.4) (14.6)(100.0)
<3.0> <34.7> <3. 2>
1930 31,001 3,023 49 4,865 5,226 43,984
(70.5) (6.8) (0.1) (10.7) (11.9)(100.0)
<9.6> <85.0> <12.6>
1940 60,175 6,379 65 8,554 9,460 8 4 , 6 2 3
(71.1) (7.5) (0.1 ) ( 1 0 . 1 ) (11.2) (100.0)
<16.4> <92.6> <18.7>
1950 35,170 4,316 82 1 3 , 2 9 8 6,176 5 9 , 0 4 2
(39.6) (7.3) (0.1 ) ( 2 2 . 5 ) (10.5)(100.0)
<2.4> <89.1> <7.9>
1955 40,195 16,145 340 16,976 6,309 7 9 , 9 6 5
(50.3) (20.1) (0.4) (21.2) (7.9)(100.0)
<8.8> <96.3> <24.0>
1960 56,428 50,528 1 ,324 2 0 , 4 6 9 5,179133,928
(42.1) (37.7) (1.0) (15.3) (3.9)(100.0)
<17.0> <98.3> <44.2>
1965 64,916138,148 2,869 26,759 3,853236,757
(27.4) (58.3) (1.2) (11.3) (1.6)(100.0)
<30.0> <99.2> <66.1>
1970 91,891313,944 5,677 2 8 , 0 2 9 1,603 2,293445,441
(20.7) (70.8) (1.3) (6.3) (0.4) (0.5)(100.0)
<61.0> <99.6> <32.7> <83.2>
1975 88,300388,220 12,780 29,750 8,750 1 ,430529,230
(16.7) (73.4) (2.4) (5.6) (1.7) (0.3)(100.0)
<78.5> <99.7> <71.4> <88.0>
1980 95,887370,964 35,767 32,231 28,907 270564,026
(17.0) (65.8) (6.3) (5.7) (5.1) (0.5)(100.0)
<81.8> <99.8> <90.7> <85.3>

Source: H i s a o K a n a m o r i , Koza Nihon Keizai , 2 vols.

( T o k y o : Chuo K e i z a i s h a , 1982), 2:22-23.
 78

TABLE 3-8

SMITHSONIAN RATES OF MAJOR CURRENCIES

Currency New r a t e Old rate Appreciation

r a t e .(%)

Japan Yen 308 360 16.88

W.Germany Mark 3.22 3.66 13.57
Switzerland S.Franc 3.84 4.08 6.36
France F.Franc 5.12 5.55 8.57
U.K. Pound 2.60 2.40 8.57
(/pound)
Italy Lira 582 625 7.48
Canada C.Dollar float float -
U.S. US.Dollar 38 35 -7.89
(/one o u n c e
gold)

S o u r c e : Y o s h i t o m i I s h i m a r u , Endaka to Ni hon Keizai

(Tokyo: M a i n i c h i S h i n b u n s h a , 1978), p. 20.

TABLE 3-9

U.S. INTERNATIONAL LIQUIDITY POSITION

- b i l l i o n US d o l l a r s -
Gold and f o r e i g n International International
currency debt credit
reserves

1 949 26.0 6.9 1.1

1971 13.2 67.8 16.1

S o u r c e : Y o s h i t o m i I s h i m a r u , Endaka to Ni hon Keizai

(Tokyo: M a i n i c h i S h i n b u n s h a , 1978), pp. 16-18.
 79

TABLE 3-10

CHANGE I N O I L P R I C E S

- Arabian light, US dollars/barrel

1970 1971 1972

Aug.31 Feb.15 Jan.20
1.800 2.180 2.479

1973
Jan. 1 Apr.1 Jun. 1 J u l . 1 Aug. 1 Oct.16 Nov. 1 Dec.1
2.591 2.742 2.898 2.955 3.011 5.119 5.176 5.036

1974
Jan. 1
11.651

Source: Japan, Agency of N a t u r a l Resource and Energy,

Sekiyu Kiki to Jukyu Taisaku (Tokyo: Sekiyu Tsushinsha,
1974), p.3 4 1 .

T A B L E 3-11

MAJOR J A P A N E S E ECONOMIC INDICES

(1972-1975)

- budget year, g r o w t h r a t e (%) -

1 972 1973 1974 1975

N o m i n a l GNP 17.3 23.0 17.9 9.4

R e a l GNP 11.0 5.4 -0.6 3.1
Production of mining & 10.8 14.8 -9.4 -3.6
manufacturing
Wholesale price 3.2 22.6 23.4 2.1
Consumer price 5.2 16.1 21 .8 10.4
Export 19.4 32.3 47.3 -2.4
Import 25.2 77.2 39.3 -7.1

S o u r c e : J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Keizai
Hokoku, 1973-1976 (Tokyo: Economic P l a n n i n g Agency,
1973-1976).
 80

TABLE 3-12

GROWTH OF R E A L GNP I N S E V E N I N D U S T R I A L C O U N T R I E S
AND THE OECD

(%)
Average From Previous From Previous Half-
1959-60 Year Year
to 1973 1974
1971-72 1973 1974 II I II

Canada 5.0 6.8 4.5 4.5 5.6 2.5

France 5.8 6.0 4.8 5.4 4.5 4.3
Germany 4.9 5.3 1 .0 0.5 2.0 0.0
Italy
Japan
5.5
11.0
6.0
10.2
4.8
-3.3
9.4
2.8
4.9
-9.3
a.o
3.0
U.K. 3.1 5.3 -0.5 0.3 -3.4 5.0
U.S. 4.1 5.9 -1 .8 1.9 -3.4 -2.5
Total of 5.5 6.5 -0.3 2.6 -2.0 0.3
above
countries
T o t a l OECD 5.4 6.3 0.3 3.0 -1.3 0.5

S o u r c e : C a n a d a , M i n i s t r y o f F i n a n c e , Economic Review,
A p r i l I 9 7 5 ( 0 t t a w a : I n f o r m a t i o n C a n a d a , 1 9 7 5 ) , p . 9; OECD
( O r g a n i z a t i o n f o rEconomic C o o p e r a t i o n and Development),
Economic Outlook, December, 1974.

Note:
1. F i g u r e s a r e s e a s o n a l l y a d j u s t e d a t a n n u a l r a t e s :
estimates
2. F i g u r e s o f F r a n c e a n d t h e U . K . ( U n i t e d K i n g d o m ) a r e
b a s e d o n GDP.
3. T o t a l f i g u r e s a r e c a l c u l a t e d u s i n g 1 9 7 3 w e i g h t s a n d
exchange r a t e s .
 81

TABLE 3-13

WHOLESALE P R I C E INDICES: INTERNATIONAL COMPARISON

- 1970=100 -
1971 1972 1973 1974 1 975 1 976 1977 1978

JAP. 99.2 100.0 115.8 1 52.2 156.8 1 64.6 1 67.8 163.6

U.S. 103.2 107.9 122.7 145.9 158.4 165.7 1 75.9 189.7
CAN. 101.2 108.3 131.5 1 38. 1 153.7 161.6 1 74.3 190.3
U.K. 1
1 04.6 109.2 144.5 201 .9 232.6 295.4 338.7 336.3
ITA. 102.7 106.8 125.9 1 77.2 192.4 236.4 277.5 300.8
W.G. 2
104.3 107.0 114.1 129.4 135.5 1 40.8 1 44.5 146.3
FRA. 3
96.8 99.1 124.8 1 66.2 136.8 1 54.6 1 66.9 169.5

S o u r c e : Asahi Nenkan, 1981 (reference edition) (Tokyo:

A s a h i S h i n b u n s h a , 1 9 8 1 ) , Kokuren Toukei Geppo (United
N a t i o n s , September, 1980).

Note:
1
Basic materials
i n d u s t r i a l products
3
Materials
1. J A P . = J a p a n , U . S . = U n i t e d S t a t e s , CAN.=Canada,
U . K . = U n i t e d K i n g d o m , W.G.=West G e r m a n y , FRA.=France.
 82

T A B L E 3-14

B A L A N C E OF I N T E R N A T I O N A L PAYMENTS

- b i l l i o n US d o l l a r s -
Trade Service Current Capital Total
balance balance balance balance

Industrial 1972 7.2 4.6 . 11.8 -7.2 4.6

countries -73
1 974 -28.5 5.0 -23.5 2.8 -20.7
1975 6.8 -0.8 6.0 -8.5 -2.5

OPEC 1 972 17.3 -13.2 4. 1 0.0 4.1

countries -73
1 974 83.4 -13.4 70.0 -33.2 36.8
1975 58.5 -12.0 46.5 -36.3 10.2

Non o i l 1 972 -6.5 -2.5 -9.0 16.4 7.4

produc i n g -73
LDCs 1 974 -22.3 -5.5 -27.8 29.0 1.2
1975 -26.5 -11.5 -38.0 34.7 -3.3

S o u r c e : J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Keizai
Hokoku, 1976 (Tokyo: Economic P l a n n i n g Agency, 1976), p. 76;
I M F ( I n t e r n a t i o n a l M o n e t a r y F u n d ) , Annual Report '75; ,
IMF Survey; OECD, Economic Outlook No.18.

Note: 'Service' includes private transfer payments.

 83

TABLE -15

CURRENT B A L A N C E S < OECD C O U N T R I E S

- billion US d o l l a r s -
1973 1974 1975
By o i l
Whole I II Whole Jan-Mar I
yearcost year
increase
from
1973
Japan -0.14 -13.00 -4.1 -0.4 -4.5 0.4 0.5
U.S. 0.51 - 1 4 . 7 5 0.5 -1 .8 -1 .2 1 .5 3.5
W.Germany 4.54 -6.25 5.4 3.9 9.3- 2.3 4.5
France -0.68 -6.25 -3.2 -2.8 -6.0 -0.3 -1 .3
U.K. -3.11 -5.25 -4.7 -4.5 -9.1 -0.7 -3.0
Italy -2.42 -5.00 -4.6 -3.3 -7.9 0.2 -1 .5
Total -1 .30 - 5 0 . 5 0 -10.7 -9.0 -19.3 3.4 2.7
of
above
countries
Total 2.50 - 5 9 . 0 0 -16.8 17.5 -34.3 -7.0
OECD

S o u r c e : J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Kei zai

Hokoku, 1975 (Tokyo: Economic P l a n n i n g Agency, 1975), p. 65;
OECD, Economic Outlook, December 1974; Bank o f E n g l a n d ,
Quarterly Bulletin, June 1975.
 84

T A B L E 3-16

T O T A L F O R E I G N EXCHANGE R E S E R V E S OF MAJOR INDUSTRIAL

C O U N T R I E S AND OPEC C O U N T R I E S

- b i l l i o n US d o l l a r s -
End of Year 1972 1 973 1974
Total Of Total Of Total Of
reserves which reserves which reserves which
foreign foreign foreign
exchange exchange exchange

Industrial
countries
-Belgium 3.9 1.1 5.1 2.0 5.3 2.2
-Canada 6.1 4.4 5.8 3.9 5.8 3.8
-France 10.0 5.1 • 8.6 3.7 8.9 3.8
-W.Germany 23.8 17.2 33.1 25. 1 32.7 24.3
-Italy 6.1 2.2 6.4 2.2 6.9 3.2
-Japan 18.4 16.5 12.2 10.2 13.5 11.3
-Netherlands 4.8 1 .4 6.6 3.3 6.9 3.5
-Switzerland 7.5 4.3 8.1 4.6 9.0 5.4
-U.K. 5.7 4.1 6.5 4.7 6.9 4.9
-U.S. 13.2 0.2 14.4 0.1 16.1 0.1
TOTAL 99.5 56.5 106.8 59.8 112.0 62.5
Percentage - - 7.1 5.6 5.0 4.3
Change
OPEC
countries
-Algeria 0.5 0.2 1 .2 0.8 1 .7 1 .4
-Ecuador 0.1 0.1 0.2 0.2 0.4 0.3
-Indonesia 0.6 0.5 0.8 0.8 1 .5 1 .4
-I ran 1 .0 0.8 1 .2 1 .0 8.4 7.7
-I raq 0.8 0.6 1 .6 1 .3 3.3 3.0
-Kuwait 0.4 0.2 0.5 0.4 1 .4 0.9
-Libya 2.9 2.8 2.1 2.0 3.6 3.5
-Nigeria 0.4 0.3 0.6 0.5 5.6 5.5
-Oman 0.2 0.2 0.1 0.1 0.2 0.2
-Qatar - - - - - -
-Saudi 2.5 2.3 3.9 3.7 14.3 13.4
Arabia
- U n i t e d A.E. - - - - - —
-Venezuela 1 .7 1. 1 2.4 1 .7 6.8 5.4
TOTAL 11.1 9.1 14.5 12.5 47.2 42.7
Percentage - - 30.6 37.3 225.5 241 .6
Change

S o u r c e : C a n a d a , M i n i s t r y o f F i n a n c e , Economic Review,
1975 (Ottawa: I n f o r m a t i o n Canada, 1975), p . 17;IMF,
International Financial S t a t i s t i c s , F e b r u a r y , 1975.
 C H A P T E R FOUR

THE B U S I N E S S A S P E C T S OF JAPAN'S REACTION

TO THE 1973 OIL CRISIS

In Chapter Two the political aspects of Japan's

reaction to the 1973 o i l crisis were d i s c u s s e d and the role

of the bureaucracy was emphasized. In Chapter Three the

economic aspects were reviewed and the relationship between

economic efficiency and vulnerability investigated. In this

chapter the Japanese business reaction to the crisis is

discussed.

As p o i n t e d out i n Chapter Two, t h e r e were strong

initiatives taken by the bureaucracy and politicians in

responding to the crisis, but these initiatives became

successful o n l y when t h e business sector accepted them and

cooperated with other sectors. I t i s important to remember

that most p o l i c y measures adopted by the government were

implemented i n the form of a d m i n i s t r a t i v e guidance which had

no legal binding character. Therefore, the cooperation of

the business s e c t o r was expected i n implementing most policy

measures f o r the o i l crisis. In this chapter, the reaction

of Japanese business i s reviewed from two p e r s p e c t i v e s . From

the political p e r s p e c t i v e , the role taken by major economic

organizations and business leaders is investigated. From the

economic p e r s p e c t i v e , the management e f f o r t s undertaken in

85
 86

companies a r e investigated.

1. T H E P O L I T I C A L R E A C T I O N OF J A P A N E S E B U S I N E S S TO T H E O I L

CRISIS

(l)Major Japanese Business Organizations

There a r e four major business o r g a n i z a t i o n s i n Japan

which take a role i n expressing the opinions of the business

sector. The K e i d a n r e n (Japan Federation o f Economic

Organizations) 1 0 5
, e s t a b l i s h e d i n 1946, i s t h e l e a d i n g

economic o r g a n i z a t i o n . I t i s independent from t h e government

and supported by more t h a n 115 a s s o c i a t i o n members a n d m o r e

than 800 c o r p o r a t e members. B e c a u s e o f i t s wide coverage and

political i n f l u e n c e , the Keidanren i s sometimes d e s c r i b e d as

the centre of Japanese business, and t h e chairman of

1 0 5
M c M i l l a n e x p l a i n s the o r g a n i z a t i o n as follows:
"There i s no e q u i v a l e n t t o t h e K e i d a n r e n , although
France's ' p a t r o n a t ' ( L a C o n f e d e r a t i o n Generale du
Patronat F r a n c a i s ) and B r i t a i n ' s Confederation of
B r i t i s h I n d u s t r y , f o u n d e d i n 1 9 6 5 , come c l o s e s t i n
terms o f power a n d p r e s t i g e . However, t h e K e i d a n r e n
o p e r a t e s w i t h a p a n e l o f 39 s t a n d i n g c o m m i t t e e s
i n v o l v i n g t h e most s e n i o r e x e c u t i v e s o f m a j o r
corporations-committees which do d e t a i l e d r e s e a r c h
on i s s u e s r a n g i n g f r o m s m a l l b u s i n e s s a n d t a x a t i o n
t o t e c h n o l o g y a n d i n d u s t r i a l p o l i c y . T h i s work
i n v o l v e s an e x t e n s i v e and c o n s t a n t process o f
c o n s u l t a t i o n a c r o s s companies, academe, o t h e r
economic groups and, o f course, government. While
the b a s i c ideology of t h e Keidanren i s essentially
c o n s e r v a t i v e a n d f r e e e n t e r p r i s e , i t d e r i v e s much o f
i t s s t r e n g t h from i t s understanding n o t j u s t o f t h e
p r i v a t e s e c t o r b u t t h e government decision-making
apparatus and Japan's r e l a t i v e economic and
t e c h n o l o g i c a l s t a n d i n g as compared t o c o m p e t i t o r s "
( C h a r l e s J . M c M i l l a n , The Japanese Industrial System
[ B e r l i n & New Y o r k : W a l t e r d e G r u y t e r , 1 9 8 5 ] , p . 5 7 ) .
 87

Keidanren i s called the prime m i n i s t e r o f zai kai or Japanese

business society.

The Nissho ( J a p a n Chamber o f Commerce and Industry) 1 0 6

is a confederation of l o c a l chambers of commerce a n d

industry. I t evolved from t h e T o k y o Chamber o f Commerce

founded i n 1878 by s p e c i a l l e g i s l a t i o n with interests in

regional economic p r o b l e m s i n c l u d i n g those of s m a l l and

medium scale "businesses.

The Nikkeiren (Japan F e d e r a t i o n of Employers'

Association) 1 0 7
i s a confederation of r e g i o n a l employers'

associations and v a r i o u s trade associations. It is a

specialized group concerned w i t h t h e p r o b l e m s o f wages,

working c o n d i t i o n s and l a b o u r management relations.

The K e i z a i Doyukai ( J a p a n Committee f o r Economic

1 0 6
M c M i l i a n e x p l a i n s the o r g a n i z a t i o n as f o l l o w s :
"The JCCI has t r a d i t i o n a l l y r e p r e s e n t e d small
b u s i n e s s , but t h e o r g a n i z a t i o n f e l l on h a r d t i m e s
a f t e r t h e War when t h e P r e s i d e n t , F u j i y a m a A i i c h i r o ,
became a v i c t i m o f t h e O c c u p a t i o n ' s e x e c u t i v e p u r g e .
W h i l e r e i n s t a t e d i n 1950, F u j i y a m a was u n a b l e t o
b r i n g a b o u t a r e o r g a n i z a t i o n o f t h e J C C I , and i t was
not u n t i l a s u c c e s s o r , Nagano S h i g e o , t o o k o v e r as
s u c c e s s o r i n 1970 t h a t t h e s m a l l b u s i n e s s
o r g a n i z a t i o n began t o g a t h e r s t r e n g t h a n d g a i n
i n f l u e n c e i n b o t h b u s i n e s s a n d government c i r c l e s "
{Ibid., pp. 5 8 - 5 9 ) .
1 0 7
M c M i l l a n e x p l a i n s as f o l l o w s :
" I n a d d i t i o n t o t h e wage g u i d e l i n e f u n c t i o n ,
N i k k e i r e n c o n d u c t e d a p u b l i c r e l a t i o n s campaign
a g a i n s t the l e f t l e a n i n g p r e s s , but i t i s not c l e a r
t h a t t h i s f u n c t i o n had much s u c c e s s when compared t o
t h e impact o f r i s i n g p r o s p e r i t y and b e t t e r wages on
the p u b l i c ' s a t t i t u d e towards s o c i a l i s m or f r e e
e n t e r p r i s e . A more s u c c e s s f u l r o l e f o r N i k k e i r e n has
been an e d u c a t i o n a l one: t r a i n i n g young e x e c u t i v e s
t h r o u g h i t s own o f f i c e s a n d o f f e r i n g on t h e j o b
t r a i n i n g f o r foremen f o r t h e 29,000 member c o m p a n i e s
and 54 i n d u s t r y a s s o c i a t i o n s " {Ibid., p. 5 8 ) .
 88

Development) 1 0 8
i s an o r g a n i z a t i o n f o rbusiness leaders who

join as i n d i v i d u a l s . The main p u r p o s e of the o r g a n i z a t i o n i s

to provide business leaders with a place t o meet a n d speak

out freely on v a r i o u s economic and s o c i a l issues.

(2) The A c t i o n s Taken by Japanese B u s i n e s s Leaders

In response t o t h e 1973 o i l c r i s i s , the Japanese

business sector tried t o reach a consensus and t o i n f l u e n c e

government policies.

In December 1972, a l m o s t one y e a r before theo i l

crisis, Keidanren made a s t a t e m e n t on J a p a n e s e energy

policy. In that statement the Keidanren insisted on

strengthening the function of t h e Japan Petroleum

Development Corporation and emphasized the importance of

direct o i l transactions with OPEC c o u n t r i e s . On N o v e m b e r 1 4 ,

1973, one month a f t e r the c r i s i s , Kogoro Uemura, Chairman o f

the Keidanren, T o s h i o Doko, V i c e - C h a i m a n of the Keidanren,

Soichi Matsune, Chairman of t h e Energy Committee of the

Keidanren, and H i r o k i Imazato, President of Kaigai Sekiyu

Kaihatsu, visited Prime M i n i s t e r Tanaka and requested that

he adopt pro-Arab p o l i c i e s . 1 0 9
On t h e f o l l o w i n g d a y ,

1 0 8
McMillan explains as follows:
" I t s most famous d e c l a r a t i o n was a p r i n c i p l e t h a t
the business o r g a n i z a t i o n c o n s i s t e d of three equal
stakeholders—management, labour, and
s h a r e h o l d e r s — a n d t h a t t h e supreme d e c i s i o n - m a k i n g
body s h o u l d c o n s i s t o f a c o u n c i l r e p r e s e n t i n g these
t h r e e g r o u p s . W h i l e t h i s d e c l a r a t i o n was w i d e l y
denounced and l a t e r s h e l v e d , i t gave t h e
organization a reputation f o rconciliation i n
management-labour m a t t e r s , a r e p u t a t i o n i n c o n t r a s t
t o t h e a n t i - l a b o u r , f i g h t i n g N i k k e i r e n " {Ibid., p. 5 8 ) .
y09
Ninon Keizai Shinbun, 15 N o v e m b e r , 1 9 7 3 .
 89

K a z u t a k a K i g a w a t a and other Doyukai r e p r e s e n t a t i v e s had a

meeting with Tomisaburo Hashimoto, D i r e c t o r General of the

LDP, and other officials of the p a r t y . At the meeting

Doyukai representatives insisted that the government

proclaim a s t a t e of emergency in order to facilitate a

n a t i o n - w i d e movement t o w a r d e n e r g y c o n s e r v a t i o n . 1 1 0
On

November 18, Sohei Mizuno, P r e s i d e n t of A r a b i a O i l Co. Ltd.,

visited Taizo I s h i z a k a , H o n o r a r y C h a i r m a n of the Keidanren,

and explained the serious situation concerning the Middle

East. Following Ishizaka's suggestion Mizuno v i s i t e d the

prime m i n i s t e r a f t e r the meeting to e x p l a i n the

situation. 1 1 1
In response to these approaches from the

business s e c t o r , the government d e c i d e d to hold a meeting

with representatives f r o m major b u s i n e s s organizations and

energy related i n d u s t r i e s to request that they cooperate

with the government in d e a l i n g with the o i l crisis.

Through these a c t i o n s Japanese business leaders

intended to i n f l u e n c e the decision-making processes of the

J a p a n e s e g o v e r n m e n t , and in this sense t h e i r actions could

be called l o b b y i n g . However, t h e s e a c t i o n s were different

from the lobbying activities i n the United States where

lobbyists u s u a l l y represent the interests of a company or an

industrial s e c t o r . In J a p a n business leaders represented the

interests of Japanese i n d u s t r y , and they tried to protect i t

by maintaining the development of the Japanese economy.

Asahi
110
Nenkan, 1974 ( T o k y o : A s a h i S h i n b u n s h a ) , p. 393.
" S e k i y u Kiki ni Tsuyoshinakatta
1 1 1
Z a i k a i no Maedareshiki
G a i k o " , Shukan Toyo Keizai, New S p r i n g E d i t i o n , 1974, p. 39.
 90

On t h eother hand, facing t h e " o i l war" caused by t h e

fourth Middle E a s t War, major o i l suppliers and their

customers expressed their concerns about theo i l shortage

situation. Even though some p e o p l e were r e l i e v e d when t h e

war was s u s p e n d e d i nlate October, Takeo Takiguchi,

President of Nihon O i l Co. L t d . , said, " I t i ss t i l l doubtful

w h e t h e r OAPEC w i l l stop t h e o i l embargo t o t h e U n i t e d States

and production restraint strategies." 1 1 2

Hirotaka Mitsuda,

Chairman of Petroleum Association of Japan, said, "It will

take from four t o s i x months t o r e t u r n t o t h e normal

situation even though t h e war i s s u s p e n d e d . " 1 1 3

A t t h e same

time, most e l e c t r i c i t y companies explained theprospects of

raising electricity rates. Kiyoshi Kawarabayashi, President

of Kyushu E l e c t r i c Power C o . I n c . , said, "We e x p e c t e d that

the price o f o i l would be a r o u n d five d o l l a r s i n 1972 o r

1973, b u t we c a m e t o know t h a t thep r i c e increase was much

larger than we e x p e c t e d . Therefore, we h a v e t o decide t o

increase electricity rates since there i s no room for

further rationalization." 1 1 1 1

These b u s i n e s s leaders i n t h eenergy sector explained

the severe situation t o obtain understanding and support

from t h e p u b l i c . However, t h e comments o f t h e s e p e o p l e now

appear t o have been o v e r l y optimistic considering the

historical incidents which occurred after that time. This

shows t h a t specialists underestimated the influence of the

" C h u t o Senso de D e n r y o k u Neage Tsuyomaru"

1 1 2
Shukan Toyo
Keizai, 3 November, 1973, p . 4 0 .
/6/rf.
1 1 3

/&/d., p. 40.
1 1 < l
 91

1973 o i l crisis.

In Chapter Two, i t was p o i n t e d out that even i n the

government there were d i f f e r e n c e s o f o p i n i o n about how t o

deal with theo i l crisis. Such d i f f e r e n c e s o f o p i n i o n also

existed i n thebusiness s e c t o r . There was, f o r example, a

group of people called zaikai shi gen ha (resource faction).

This faction included Sohei Nakayama, A d v i s e r o f Japan

Industrial Bank, Imazato o f K a i g a i Sekiyu Kaihatsu, Matsune

of t h eKeidanren, Yoshihiko Morozumi, Adviser o f MITI, and

Yoshihito Shimada, President of Japan Petroleum Development

Corporation. These people emphasized t h e importance of

natural resources and i n s i s t e d on making their stable supply

a priority. However, t h e r e w a s a l s o a g r o u p who w e r e

concerned with changing thediplomatic stance based on t h e

strong ties with theUnited States. Bunzo Kohno o f

Mitsubishi Heavy Industry said, "Japan will lose i t s

credibility i ndiplomacy i f we c h a n g e our basic diplomatic

stance t o solve p r o b l e m s we p r e s e n t l y face. Since the United

States maintains i t s powerful o i l s t r a t e g y , Japan should

cooperate with theUnited States." 1 1 5

This group involved

Kigawada of theKeizai Doyukai, S h i g e o Nagano, Chairman o f

the Nissho, and Yoshizane Iwasa, Vice-Chairman of the

Keidanren.

In spite of such d i f f e r e n c e s of o p i n i o n , the business

sector actively tried t o reach a c o n s e n s u s . The

establishment o f t h e E n e r g y D e v e l o p m e n t C o m m i t t e e was one o f

t ? / 7 . c i t . , Shukan
1 1 5
Toyo Keizai, New S p r i n g E d i t i o n , 1974,
pp. 38-42
 92

such attempt. The committee was f i n a l l y established under

the chairmanship o f Nakayama on November 2 1 , 1973, a n d began

its activities by g a t h e r i n g e n e r g y - r e l a t e d i n f o r m a t i o n ,

developing national projects and exchanging views with the

government.

Another concern of the business sector c e n t r e d on t h e

over-intervention o f t h e government i n theprocess of

recovering from thecrisis. For instance, Sanken (Sangyo

Mondai Kenkyu K a i ) , a group of businessmen discussing mainly

political issues, presented i t s statement to thepublic on

November 21. There were t h r e e major p o i n t s i n t h e statement:

1. M a j o r o i l c o n s u m i n g i n d u s t r i e s s h o u l d s u p p o r t
p o l i c y measures a d o p t e d by t h e government a n d
p r e p a r e h o r i z o n t a l l y c o o p e r a t i v e c o n d i t i o n s among
the i n d u s t r i e s .
2. I n c a s e t h e r e e x i s t s a n y d o u b t o f v i o l a t i n g
anti-monopoly law i n the process of v o l u n t a r y
adjustment i n the business sector, the r e l a t e d
ministries should discuss better solutions.
3. T h e b u s i n e s s s e c t o r s h o u l d s h a r e s o c i a l
r e s p o n s i b i l i t y t o solve problems caused i n t h e
process of dealing with the o i l shortage problem. 1 1 6

This statement implied that thebusiness sector should take

a positive stance not only t o cooperate w i t h t h e government

but also t o prevent over-intervention by t h e government.

Inflation was a n o t h e r problem t o which the business

sector had t o pay a t t e n t i o n . On O c t o b e r 1 the Keidanren

announced i t s basic view on t h e amendment of the corporate

law. I n i t s statement theKeidanren insisted that the 1974

national budget s h o u l d be e s t a b l i s h e d giving toppriority t o

the moderation of i n f l a t i o n . On D e c e m b e r 10 K e i d a n r e n

Asahi
116
Nenkan, 1974 (Tokyo: Asahi Shinbunsha, 1974), p.
393.
 93

leaders had a meeting with Finance M i n i s t e r Fukuda who

succeeded A i c h i . At the meeting Keidanren leaders insisted

on moderating the a g g r e g a t e demand increase to around 20%.

As an approach to moderating i n f l a t i o n , the business sector

actively dealt with wage issues. (The Nikkeiren is in charge

of these issues as explained previously.) On May 25, 1973,

the Nikkeiren already pointed out that the i n f l a t i o n at the

time was a v i c i o u s one. This view was against that of the

government which insisted that the i n f l a t i o n was a temporary

adjustment. Based on this view, the Nikkeiren urged

management to stop commodity price increases as much as

possible and requested four major labour unions not to

expect high wage increases. 1 1 7

The actions taken by Japanese business can be

summarized as f o l l o w s . F i r s t , they represented Japanese

industry to influence the government policies. Secondly,

they acted to build a consensus i n the business sector.

Thirdly, they declared what t h e y had t o do for the Japanese

economy to prevent over-intervention by the government.

 94

2. THE ECONOMIC R E A C T I O N OF J A P A N E S E B U S I N E S S TO THE O I L

CRISIS

(1) The Reduction of Production

The role of Japanese business discussed i n the previous

section i s mainly concentrated on t h e p a r t i c i p a t i o n o f

business leaders i n the policy-making process. Another

aspect of the role taken by t h e b u s i n e s s sector involves the

efforts made b y m a n a g e m e n t a n d l a b o u r i n companies t o

recover from t h e 1973 o i l c r i s i s .

In 1974 J a p a n e s e business generally dealt with the

economic r e c e s s i o n , accompanied by i n f l a t i o n after theo i l

crisis, by d e c r e a s i n g their production. The Economic

Planning Agency (EPA) p o i n t s out three elements which

enabled or forced business t o decrease production. 1 1 8

First, inflation made i t e a s i e r f o rcompanies t o

decrease production. I t i s generally expected that theper

unit fixed cost will increase i f a company decreases

production i n economic r e c e s s i o n . However, since the

inflation after the c r i s i s contributed t o the decrease i n

both financial and d e p r e c i a t i o n c o s t s , the per unit fixed

cost d i dnot increase s o m u c h . On t h e c o n t r a r y , variable

costs including the material cost were e x p e c t e d to increase

if production increased. Threrefore, the decrease i n

production was p o s s i b l e a n d inevitable.

These
1 1 B
t h r e e p o i n t s a r e e x p l a i n e d i n Japan, Economic
Planning A g e n c y . Nenji Keizai Houkoku, 1975 (Tokyo: Economic
Planning A g e n c y , p p . 8-11 ( S u m m a r y t r a n s l a t i o n b y t h e
author).
 95

Secondly, the relatively l a r g e amount of u n d i s t r i b u t e d

profits enabled companies to decrease their production. The

rate of internal reserves to t o t a l capital in the

manufacturing sector increased f r o m 9% i n 1965 to 13% in

1974 partly due to the expansion of stock caused by the

inflation. Companies were a b l e to maintain the rate of

profit to t o t a l sales at the a v e r a g e of the previous 10

years by spending a part of their internal reserves.

Thirdly, companies t r i e d to maintain the price level of

their products, and so i t was necessary f o r them not to

increase their production. Even though t o t a l demand

gradually increased during the J a n u a r y - M a r c h p e r i o d of 1974,

companies m a i n t a i n e d the low level of p r o d u c t i o n to

stabilize the price level.

(2) Business Reactions i n the Changing Industrial

Structure

In t h e general trend of reducing production, the market

mechanism worked w i t h i n the m a n u f a c t u r i n g sector. Tsuruta

explains as follows. 1 1 9
In t h e competitive market,

processing c o m p a n i e s were not able t o t r a n s f e r a l l the price

increase i n m a t e r i a l s to the price of their products.

Therefore, i t became n e c e s s a r y f o r them t o recombine

production f a c t o r s such as c a p i t a l , labour, materials and

fuels to i n c r e a s e p r o d u c t i v i t y . As a result, in the

T h e f o l l o w i n g i s t h e a u t h o r ' s summary t r a n s l a t i o n of
1 1 9

T s u r u t a ' s e x p l a n a t i o n i n T o s h i m a s a T s u r u t a , Sengo Nihon no

Sangyo Seisaku ( T o k y o : N i h o n K e i z a i S h i n b u n s h a , 1982), pp.
247-250.
 96

processing companies, the ratio of intermediate inputs i n

the total production factor i n p u t s d e c r e a s e d , a s shown i n

Table 4-1. The d e c r e a s e of intermediate i n p u t s w a s made

possible by i m p r o v i n g production technologies. Such

technologies included r o b o t i c s and machine tools. As a

result, the labour productivity of the processing industry

increased after t h e 1973 o i l c r i s i s , a s shown i n T a b l e 4-2.

On t h e o t h e r hand, t h e decrease i n the cost of intermediate

inputs and the increase i n productivity imposed i m p a c t s on

the raw m a t e r i a l industry and the labour market. The

material i n d u s t r y s u f f e r e d from the decrease i n t h e demand

for their products. As p o i n t e d out i n Chapter Three, this

phenomenon a c c e l e r a t e d t h e change i n the industrial

structure.

The increase i n labour productivity caused concern

about unemployment. However, t h e unemployment rate i n Japan

in 1 9 7 4 w a s 1.8% a n d l o w e r than that of t h e United States

(9.2%), the United Kingdom (3.4%) a n d West Germany (5.1%).

The Economic Planning Agency p o i n t e d out three elements

which enabled Japan t o keep i t s unemployment rate lower than

others. 1 2 0

First, since the lifetime employment system was adopted

at least by l a r g e companies i n Japan, the decrease i n the

labour force caused by t h e d e c r e a s e i n production was

adjusted first by t h e r e s t r i c t i o n o f o v e r t i m e work a n d

J a p a n , E c o n o m i c P l a n n i n g A g e n c y . Nenji
1 2 0
Keizai Hokoku
(Tokyo: Economic P l a n n i n g A g e n c y , 1975), p p . 12-14.
 97

salary cuts, 1 2 1
a n d then by t h e c o n t r o l of marginal

e m p l o y m e n t a n d s u s p e n s i o n o f new r e c r u i t m e n t . 1 2 2
Though 74%

of companies were reported t o have implemented certain kinds

of employment a d j u s t m e n t , only 7% o f t h e c o m p a n i e s

implemented suggested retirement or lay-off.

Secondly, t h e employment adjustment f u n d was a v a i l a b l e

for companies t o prevent lay-off. The f u n d c o v e r e d h a l f o f

the payment f o r temporary absentees. I t covered two-thirds

of i tf o r small a n d medium scale companies. I t i s reported

that 12,776 b u s i n e s s e s t a b l i s h m e n t s u t i l i z e d this fund. As a

result, 10.2 b i l l i o n yen (about 50 m i l l i o n US d o l l a r s ) was

spent t o support temporary absentees.

Thirdly, t h e unemployment rate of female employees

decreased. Since the j o bopportunities f o r females decreased

due t o t h e economic recession, many female workers decided

to stay a t home. T h o s e female workers who g a v e u p g e t t i n g a

job were n o t c a l c u l a t e d as unemployed.

Japan's r e c o v e r y from t h e 1973 o i l c r i s i s was largely

due to theefforts o f m a n a g e m e n t a n d l a b o u r who r e d u c e d t h e

friction caused by changes i n the industrial structure. 1 2 3

1 2 1
4 3 . 4 % o f companies i n t h e m a n u f a c t u r i n g s e c t o r were
r e p o r t e d t o have i m p l e m e n t e d t h e r e d u c t i o n o f o v e r t i m e work
a n d 2 6 . 1 % o f t h e m i m p l e m e n t e d a s a l a r y c u t s . Asahi Nenkan,
1976 ( T o k y o : A s a h i S h i n b u n s h a , 1 9 7 6 ) , p . 5 3 3 .
1 2 2
T h e r a t i o o f l a b o u r demand t o l a b o u r s u p p l y d e c r e a s e d
f r o m 1.92 i n N o v e m b e r 1 9 7 3 t o 0 . 9 6 i n O c t o b e r 1 9 7 4 a n d 0.53
i n O c t o b e r 1 9 7 5 . Ibid.
1 2
I t i s s o m e t i m e s a r g u e d t h a t t h e J a p a n e s e management
3

system i sa p p l i e d only t o l a r g e s c a l e companies i n Japan's

d u a l economic s t r u c t u r e and does n o t e x p l a i n t h e performance
of t h e J a p a n e s e economy. I n d e e d , i t i s s m a l l a n d medium
s i z e d companies w i t h o u t t h e l i f e t i m e employment system which
have o f t e n a b s o r b e d t h e shock o f economic c h a n g e s . The
e c o n o m i c p e r f o r m a n c e o f J a p a n e s e i n d u s t r y m i g h t be
 98

3. THE C H A R A C T E R I S T I C S OF THE JAPANESE BUSINESS REACTION TO

THE OIL CRISIS

As a l r e a d y d i s c u s s e d , Japanese business i n f l u e n c e d the

political reaction to the 1973 o i l crisis i n Japan through

various actions. On the other hand, the business reaction

accelerated the change i n the Japanese industrial structure

which was recognized as the major element i n the Japanese

economic reaction to the 1973 o i l crisis. This section

investigates the major characteristics of the role taken by

Japanese business both i n macro and micro terms.

In order to understand the political i n f l u e n c e of

Japanese business, i t i s important t o pay attention to the

existence of zai kai i n Japan. Masaya M i y o s h i , Senior

Managing D i r e c t o r of Keidanren, e x p l a i n s zai kai as follows:

1. Zai kai e x i s t s i n no o t h e r c o u n t r y b e s i d e s J a p a n .
2. T h e l i t e r a l t r a n s l a t i o n o f zai kai is "financial
c l i q u e " , b u t i t h a s a much b r o a d e r m e a n i n g ;
"business world's statesmen".
3. Zai kai i s not a c o h e r e n t group but a l o o s e group
for the i n f o r m a l e l i t e c o o r d i n a t i o n .
4. Zai kai i s c o m p o s e d o f a few h u n d r e d b u s i n e s s
p o w e r e l i t e s who o c c u p y t h e l e a d i n g r o l e s i n t h e
four major business o r g a n i z a t i o n s .
5. E l d e r b u s i n e s s s t a t e s m e n who m a k e u p zai kai have
no c o u n t e r p a r t i n o t h e r c o u n t r i e s b e c a u s e o f t h e
e x t r a o r d i n a r y amount o f t i m e t h e y d e v o t e t o p u b l i c
l e a d e r s h i p n o t r e l a t e d t o t h e i r own companies.
1 2 3
( c o n t ' d ) a t t r i b u t e d t o t h e s e v e r e c o m p e t i t i o n among t h o s e
s m a l l and medium s i z e d c o m p a n i e s . However, c o n c e r n i n g t h e
1973 o i l c r i s i s , l a r g e s c a l e c o m p a n i e s w e r e i n v o l v e d m o r e
h e a v i l y i n employment a d j u s t m e n t t h a n s m a l l and medium s i z e d
c o m p a n i e s , a s shown i n T a b l e 4-3. J a p a n ' s r e c o v e r y f r o m t h e
o i l c r i s i s c a n n o t be e x p l a i n e d b y o n e e l e m e n t , b u t t h e
employment adjustment measures under the l i f e t i m e employment
system were d i s t i n c t i v e t o the Japanese r e c o v e r y .
 99

a . F o r example, Mr. Inayama, C h a i r m a n o f

K e i d a n r e n and H o n o r a r y C h a i r m a n of N i p p o n S t e e l ,
s p e n d s 80-90% of h i s t i m e a t K e i d a n r e n .
b. Most V i c e - C h a i r m e n o f K e i d a n r e n spend 20-30%
of t h e i r t i m e a t K e i d a n r e n and o t h e r b u s i n e s s
organizations.
c . Many Committee C h a i r m e n o f K e i d a n r e n a l s o
spend 20-30% o f t h e i r t i m e a t K e i d a n r e n and o t h e r
organizations.
d. T h i s i s a s t a r k c o n t r a s t t o b u s i n e s s l e a d e r s
i n o t h e r c o u n t r i e s who g e n e r a l l y d e v o t e l e s s t h a n
10% o f t h e i r t i m e t o p u b l i c l e a d e r s h i p w h i c h i s not
r e l a t e d to t h e i r companies.
6. The b a c k g r o u n d and l i f e s t y l e o f zaikai-jin
(zaikai p e o p l e ) i s not so d i f f e r e n t from t h e
m a n - o n - t h e - s t r e e t . The v a s t m a j o r i t y a r e
t e c h n o c r a t s , t h o s e who a r e f r o m o r d i n a r y f a m i l i e s ,
t h o s e who have a modest l i f e s t y l e and s a l a r y , and
t h o s e who a r e h a r d w o r k i n g , s o b e r , c o n s c i e n t i o u s and
a c u t e l y aware of t h e i r p u b l i c l e a d e r s h i p
responsibilities.
7. The p u r p o s e o f zaikai i s to r e p r e s e n t the
i n t e r e s t s of b u s i n e s s v i s - a - v i s the government, the
p u b l i c and i n t h e i n t e r n a t i o n a l a r e n a .
a . Zaikai r e p r e s e n t s g r e a t economic power and
possesses considerable p o l i t i c a l influence
(sometimes by means of p o l i t i c a l f u n d i n g ) .
b. Zaikai d e s e r v e s much o f t h e c r e d i t f o r t h e
p o s t - w a r emergence of t h e J a p a n e s e economy.
8. Zaikai c o n t i n u e s t o be i n f l u e n t i a l b e c a u s e o f i t s
g r e a t a c c o m p l i s h m e n t s and b e c a u s e t h e J a p a n e s e
p e o p l e c o n t i n u e t o have c o n f i d e n c e i n i t .
a. Japanese p e o p l e r e c o g n i z e t h a t the b u s i n e s s
s e c t o r has been t h e p r i m a r y e n g i n e of economic
g r o w t h and has p l a y e d a m a j o r r o l e i n s h a p i n g
J a p a n ' s economy.
b. J a p a n e s e p e o p l e have c o n f i d e n c e i n and g r e a t
e x p e c t a t i o n s f o r zaikai b e c a u s e i t c o n t i n u e s t o be
i n f l u e n t i a l i n harmoniously amalgamating p o p u l a r
o p i n i o n w i t h p u b l i c o p i n i o n , and p u b l i c o p i n i o n w i t h
l e a d e r s h i p o p i n i o n . In so d o i n g , zaikai is
i n s t r u m e n t a l i n a t t a i n i n g the g o a l s of a mature
d e m o c r a t i c s o c i e t y , w h i c h , t o borrow from t h e
F r e n c h p h r a s e , a r e : l i b e r t e , e q u a l i t e , and
fraternite. 1 2 0

As shown i n M i y o s h i ' s e x p l a n a t i o n o f zaikai, the sense

of social responsibility i s emphasized i n the Japanese

business society. For i n s t a n c e , on December 28, 1973, then

1 2
"This summary i s quoted from M i y o s h i ' s s p e e c h draft.
 100

MITI M i n i s t e r Nakasone requested the representatives ofthe

four major business organizations t o implement their social

responsibility to restrain the price increase. The b u s i n e s s ,

side responded to this r e q u e s t by e x p r e s s i n g t h a t i t was t h e

social responsibility of the business sector t o absorb the

price increase b y a s much rationalization effort as

possible. 1 2 5
The sense of s o c i a l responsibility i n Japanese

business i srelated to" t h e concept of "Business World's

Statesmen" i n Miyoshi's explanation.

Another unique characteristic of t h e Japanese social

system i s seen i n the government-business relationship.

Administrative guidance, which was one o f t h e p o l i c y

measures c a r r i e d o u t by t h e government i n response to the

1973 o i lcrisis as reviewed i n Chapter Two, shows t h e u n i q u e

relationship between t h e government and business i n Japan.

As Patrick and Rosovsky explain (see note 4 6 , p a g e 2 5 ) , many

kinds of potential benefits and costs s u g g e s t e d by t h e

government i n d u c e b u s i n e s s t o obey a d m i n i s t r a t i v e guidance.

The power of providing business with benefits or imposing

costs on i t i s d e r i v e d from v a r i o u s kinds of authorities

possessed by t h e government, such as t h e a u t h o r i t y t o grant

permission and c e r t i f i c a t i o n . T h e r e f o r e , i ti s importantf o r

a company t o m a i n t a i n a good relationship with the

government. To do t h i s , companies often recruit retired

bureaucrats, who w o r k a s a c o m m u n i c a t i o n c h a n n e l between t h e

company a n d t h e government.

}25
Nihon Keizai Shinbun, 29 D e c e m b e r , 1 9 7 3 .
 101

The zai kai activities c a n be i n t e r p r e t e d a s a n active

form o f p a r t i c i p a t i o n by Japanese business i n the

implementation of government policies. The a c c e p t a n c e o f

administrative g u i d a n c e , on t h e o t h e r hand, c a n be

recognized as a passive form o f p a r t i c i p a t i o n . The close

relationship between t h e government and b u s i n e s s symbolized

by zai kai activities and a d m i n i s t r a t i v e guidance contributed

to the flexible reaction of Japan t o t h e 1973 o i l c r i s i s .

However, t h e unique government-business r e l a t i o n s h i p

does not explain the basic feature of Japan's economic

recovery from the c r i s i s . Indeed, that feature i s still

explained by t h e r a t i o n a l i z a t i o n e f f o r t s made by each

company and i n d u s t r y f o l l o w i n g t h e market mechanism. This

point i s related to the question o f how m u c h t h e government

contributed t o Japanese economic performance after the

crisis. There i s no d o u b t that the Japanese government took

a strong initiative i n t h e economic recovery process after

W o r l d War I I . Through the trade and c a p i t a l liberalization

movements i n t h e 1960's, however, t h e government gradually

lost i t sadministrative p o w e r w h i c h was m a i n l y enforced by

various kinds of approval a u t h o r i t i e s . On the other hand,

Japanese industry increased i t s international competitive

p o w e r a n d came t o w o r r y a b o u t over-intervention by t h e

government. 1 2 6
Indeed, t h e government h a d no e f f e c t i v e

measure to protect Japanese industry f r o m t h e 1973 o i l

M I T I emphasized t h e importance of t h e market mechanism i n

1 2 6

economic a c t i v i t i e s i n t h e i r v i s i o n f o r t h e Japanese
i n d u s t r i a l s t r u c t u r e announced i n 1974.
 1 02

crisis, and the s t r u c t u r a l change i n Japanese industry was

facilitated by the market force. In t h i s sense, the lack of

intervention by the government encouraged Japanese industry

to r e c o v e r from the o i l c r i s i s . The unique r e l a t i o n s h i p

between the governmnt and b u s i n e s s i n Japan brought about

effective division of labour between them.

The Japanese management s y s t e m also contributed to the

Japanese r e c o v e r y from the o i l c r i s i s . There are three

elements which are usually pointed out as major

characteristics of the Japanese management s y s t e m . They are

the lifetime employment system, the seniority system and

employees' loyalty to their company. I t i s not difficult to

demonstrate that these elements contributed to Japan's

recovery from the o i l c r i s i s . For instance, as noted in

Chapter Three, major Japanese e l e c t r o n i c s companies sent

some o f t h e i r f a c t o r y employees to their retailers. These

employees were still paid by their original companies, but

this policy was effective in increasing sales and suspending

production. The temporary transfer of labor was possible

partly because employees understood that t h e y were employed

under the lifetime employment and seniority system. It was

expected that they could come b a c k to their company when the

economic situation improved. Such a t t i t u d e s can be

interpreted as an a s p e c t of company loyalty on the part of

employees. However, the loyalty i s only maintained with the

expectation that they w i l l eventually obtain benefits by

maintaining i t . The labour-management system i n Japan should

 1 03

be interpreted as mutually beneficial t o management and

labour. 1 2 7

Both the concept of s o c i a l responsibility of business

and the unique relationship between t h e government and

business are also the result o f an e c o n o m i c system based on

the particular geographical and h i s t o r i a c l c o n d i t i o n s of

Japan. Geographically, Japan i s an i s l a n d country with a

homogeneous population o f more than 100 million.

Historically, the Japanese population remained nearly

homogeneous f o r more than 1,000 years. As a r e s u l t , Japanese

people have, sometimes potentially, a strong national

identity which leads to a strong sense of n a t i o n a l unity 1 2 8

at a time of crisis.

1 2
I n t h i s r e s p e c t , t h e a u t h o r does not agree w i t h t h e
7

e x p l a n a t i o n t h a t Japanese employees have a s t r o n g e r sense o f

l o y a l t y t o t h e i r company t h a n W e s t e r n e r s do. J a p a n e s e
employees work h a r d f o r t h e i r company m a i n l y b e c a u s e t h e y
b e l i e v e t h a t i t i s t h e b e s t ( o r t h e o n l y ) way t o i n c r e a s e
t h e i r own b e n e f i t s . T h e d i f f e r e n c e i s s e e n i n t h e s y s t e m
r a t h e r than i n t h e i r sense of l o y a l t y .
1 2 8
T h e d e f e a t i n W o r l d War I I s e e m e d t o s t r e n g t h e n t h e s e n s e
of n a t i o n a l u n i t y i n J a p a n b e c a u s e J a p a n e s e p e o p l e had t o
work t o g e t h e r i n o r d e r t o r e c o n s t r u c t t h e J a p a n e s e economy.
 1 04

4. TABLES

T A B L E 4-1

CHANGES I N I N T E R M E D I A T E I N P U T S I N THE PROCESSING INDUSTRY

- b i l l i o n y e n , ( s h a r e , % ) , 1975 b a s i s -
1970 1975 1978
Nominal
-Total intermediate 15,884 25,725 37,471
inputs (64.3) ( 6 3 . 1) (64.6)
-Value added 8,799 15,039 20,550
(35.6) (36.9) (35.4)
-Employer's income 4,068 8,070 11,545
(16.5) (19.8) (19.9)
-GDP 24,684 40,763 58,021
(100.0) (100.0) (100.0)
Real
-Total indermediate 24,661 25,725 35,995
inputs (75.9) ( 6 3 . 1) (61.4)
-Employer's income 9,309 8,070 8,943
(28.7) (19.8) (15.3)
-GDP 32,479 40,763 58,489
(100.0) (100.0) (100.0)

S o u r c e : T o s h i m a s a T s u r u t a , Sengo Ni hon no Sangyo

Seisaku (Tokyo: Nihon K e i z a i Shinbunsha, 1982), p.248.

Note:
1. T h e p r o c e s s i n g i n d u s t r y i n c l u d e s g e n e r a l m a c h i n e r y ,
e l e c t r i c machinery, t r a n s p o r t a t i o n machinery and p r e c i s i o n
machinery.
2. C o n c e r n i n g t h e d e t a i l s o f d e f l a t o r s , s e e ibid.
 105

T A B L E 4-2

P R O D U C T I V I T Y I N C R E A S E I N THE P R O C E S S I N G INDUSTRY

- 1975 b a s i s -
G.M. E.M. T.M. P.M. M.G.

1970 95.0 75.5 83. 1 79.2 86.2

1975 100.0 100.0 100.0 100.0 100.0
1977 125.3 131.1 113.8 159.3 1 19.2
1978 139. 1 150.5 118.1 179.8 129.6
1979 162.6 168.0 129.3 .233.5 141 .7
1980 180.9 191.4 149.7 311.6 150.6
Growth
Rate
1 970-75 4.7 32.5 20.3 26.3 16.0
1975-80 80.9 91 .4 49.7 211.6 50.6

S o u r c e : T o s h i m a s a T s u r u t a , Sengo Ni hon no Sangyo

Seisaku (Tokyo: Nihon K e i z a i Shinbunsha, 1982), p.249.

Note:
1. G . M . = g e n e r a l m a c h i n e r y , E . M . = e l e c t r i c m a c h i n e r y ,
T . M . t r a n s p o r t a t i o n machinery, P.M.=precision machinery,
M.G.=manufacturing i n general.
2. L a b o u r p r o d u c t i v i t y = p r o d u c t i o n i n d e x / e m p l o y e e s .

T A B L E 4-3

THE R A T I O OF B U S I N E S S E S T A B L I S H M E N T S I M P L E M E N T I N G EMPLOYMENT
ADJUSTMENT

- Manufacturing, % -
1 974 1975
I&II III IV I II III IV

M o r e t h a n 1,000 31 52 76 85 81 79 74
employees
300-999 30 49 70 77 76 69 56
100-299 21 35 62 70 64 53 47
30 - 9 9 17 25 43 53 51 47 33

S o u r c e : J a p a n , E c o n o m i c P l a n n i n g A g e n c y , Nenji Keizai
Hokoku, 1976 ( T o k y o : E c o n o m i c P l a n n i n g A g e n c y , 1 9 7 6 ) , p .
177.
Note: I ; January-March, I I ; A p r i l - J u n e , I I I ;
July-September, I V ; October-December.
 CHAPTER FIVE

CONCLUSION

The major conclusions of the preceding chapters c a n be

summarized as follows.

The Japanese p o l i t i c a l system c o n s i s t s of the D i e t , the

Cabinet and the bureaucracy. The J a p a n e s e p o l i t i c a l system

itself faced a transition when t h e 1973 o i l c r i s i s occurred,

and that transition was c h a r a c t e r i z e d b y t h r e e trends.

First, the p o l i t i c a l dominance of the L i b e r a l Democratic

Party i n the Diet became w e a k e n e d . Secondly, the factional

struggles inside t h e p a r t y made p r i m e m i n i s t e r s ' t e n u r e s i n

the 1970's s h o r t e r than before. Thirdly, priorities in

policy-making shifted from postwar political issues to the

economic issues arising from rapid economic growth.A l l

these trends reflected the fact that the interests of

Japanese people, w h i c h had p r e v i o u s l y been unified in

pursuing economic growth, became d i v e r s i f i e d after

accomplishing i t . A t t h e same t i m e , the influence of the

J a p a n e s e economy on t h e w o r l d increased.

It was i n the context of t h i s political situation that

the 1973 o i l c r i s i s occurred, causing considerable confusion

within the Japanese p o l i t i c a l scene. The c o n f u s i o n was

evident i n the differing opinions voiced inside the

government and i n the c o n f l i c t of interests among industrial

106
 1 07

sectors. These f a c t s make i t inappropriate to explain the

Japanese political system by emphasizing i t s unified

character. I t i s important to investigate the mechanism

which operated to c o o r d i n a t e the conflict of interests which

arose.

In that coordination mechanism, the bureaucracy took an

important role. I t was the Cabinet supported by the

bureaucracy which first reacted to the 1973 o i lcrisis and

implemented the urgent policies t o overcome it. After the

Meiji R e s t o r a t i o n the bureaucracy assumed the role of

coordinator i n order t o c a t c h up w i t h Western countries.

Bureaucrats were p r o v i d e d v a r i o u s k i n d s of regulatory

authority through licensing and authorization procedures,

and the p r i v a t e sector acquired a kind of constitutional

custom of obeying them. A f t e r World War II the rights of the

government t o g r a n t p e r m i s s i o n and certification decreased

with the development of the Japanese economy and the

liberalization of the Japanese political and economic

system. However, the custom of obeying the bureaucrats

persisted. The influence of the bureaucracy i n Japan is

explained by three factors. First, i n the bureaucracy there

is a continuity based on the lifetime employment system. The

bureacrats maintain their power in spite o f , or because of,

the frequent changes i n the C a b i n e t . On the other hand,

senior bureaucrats are often recruited by o r g a n i z a t i o n s and

companies around their r e t i r e m e n t ages. This recruitment i s

called amakudari (literally meaning "descending from

 108

heaven"). The amakudari reflects the influence of the

bureaucracy i n Japan. Secondly, the Japanese bureaucracy

often implements administrative guidance which i s not based

on l a w . The i m p l e m e n t a t i o n of administrative guidance also

reflects the influence of the b u r e a u c r a c y and the special

relationship between the government and business i n Japan.

Thirdly, the a b i l i t y to draft a law provides the bureaucrats

with bargaining power not only with politicians but also

with companies and the p u b l i c . Thus, using i t s special

position and influence, the Japanese bureaucracy contributed

to Japan's r e c o v e r y from the 1973 o i l crisis.

The 1973 o i lcrisis had a great impact on the Japanese

economy b e c a u s e i t occurred during the time of the

inflationary situation caused m a i n l y by the "Nixon shock" in

1971. Since the i n e x p e n s i v e supply of o i l was one of the

basic elements which enabled Japan to accomplish economic

growth, the o i l c r i s i s shook the Japanese economic structure

at i t sfoundations.

Japan overcame the d i f f i c u l t i e s caused by the o i l

crisis by changing i t s industrial structure. The f o c u s of

the Japanese industrial structure shifted from heavy and

chemical industries to the processing and

knowledge-intensive industries. Two phenomena were behind

this change. One was the e f f o r t s of companies to conserve

energy and develop alternative energy s o u r c e s . These efforts

increased the p r o d u c t i v i t y of Japanese industry. The other

was t h e c h a n g e among industrial sectors. For instance, the

 109

raw material industry suffered from the c r i s i s not only from

the increase i n the o i lprice but a l s o from the decrease i n

the demand for their products. The decrease i n the demand

for materials was a result of the r a t i o n a l i z a t i o n efforts

made by the processing industry. As a result, most

industries dependent on o i l use became d e p r e s s e d industries.

It i s i m p o r t a n t t o remember that the r a t i o n a l i z a t i o n efforts

of companies based on the market mechanism caused the change

in the Japanese industrial structure through which Japan

recovered from the o i l c r i s i s .

Japan's economic reaction to the 1973 o i l crisis

revealed an important characteristic of the Japanese

economy. J a p a n e s e economic development was a c c o m p l i s h e d by ^

pursuing economic efficiency at the r i s k of economic

vulnerability. For instance, the p o l i t i c a l decision to

replace coal by o i l increased economic efficiency but also

increased economic vulnerability. Increased vulnerability

increased the impact of the o i l c r i s i s on the Japanese

e c o n o m y . One essential element which enabled Japan to

recover from the c r i s i s was economic flexibility. For

instance, management p u t up w i t h the decrease i n their

profits and labour put up w i t h the decrease i n t h e i r real

income f o r the sake of long term b e n e f i t s i n the

rationalization process.

There were two main characteristics of Japanese

business reactions to the o i l c r i s i s . One was the reaction

of business leaders to influence the political

 110

decision-making process of Japan. The other was the reaction

of e a c h company to rationalize i t s production process. It

was the rationalization efforts which mainly contributed to

Japan's recovery from the crisis. However, the efforts to

influence political decision-making also contributed to the

recovery by preparing an appropriate environment for

business activities.

It i s o f t e n p o i n t e d out that there are cooperative

relations between the government and business and between

management and the labor i n Japan. However, such cooperative

relations do not really e x p l a i n the economic performance of

Japan. The essence of the Japanese business reaction lay in

the severe competition among c o m p a n i e s a n d industrial

sectors based on the m a r k e t m e c h a n i s m . The flexibility of

the J a p a n e s e economy p o i n t e d out i n Chapter Three was a

result this severe competition.

Severe competition i s a phenomenon not only in Japan

but also i n other industrial countries. Therefore, the

unique f e a t u r e of Japanese business should be found in the

willingness of companies to cooperate with each other when

faced with a c r i s i s . This cooperative attitude does not mean

helping each other exclusively but paying a t t e n t i o n to the

situation of o t h e r s . For i n s t a n c e , the social responsibility

of big businesses was e m p h a s i z e d when t h e o i l crisis

occurred. I t was contrary to the sense of social

responsibility to pursue individual b e n e f i t s by ignoring the

damage done to the society. The c o o p e r a t i v e " a t t i t u d e was

 111

also seen i n t h e labour-management relationship. Since most

labour unions were company-based unions i n Japan, they d i d

not make requests which would bankrupt companies. Indeed,

there was a c o e x i s t e n c e of severe competition and a

cooperative attitude i n the Japanese business reaction to

the crisis.

The major conclusions of t h i s t h e s i s are focused on t h e

answers t o two q u e s t i o n s . Which o f t h e two major components

of the Japanese system, government l e a d e r s h i p or t h e market

m e c h a n i s m , was a more important determinant of the

successful Japanese r e s o l u t i o n of the problems caused by t h e

1973 o i l crisis? Secondly, what was d i s t i n c t i v e about the

Japanese reaction to the o i l c r i s i s as opposed t o that of

other countries?

In fact these two q u e s t i o n s are interrelated. An almost

universal outside view of the Japanese system i s that i t i s

essentially consensual, drawing together the various sectors

of the s o c i e t y i n a s e r i e s of i n s t i t u t i o n a l i n t e r f a c e s which

allow consensus t o be r e a c h e d . This process i s helped by t h e

supposed homogeneity of Japanese society. While this study

does not d i s p r o v e this viewpoint, i t a l s o shows t h a t there

w e r e many sharply opposed f a c t i o n s w i t h i n Japan a t the time

of the o i l c r i s i s and v a r i o u s different opinions a s t o how

the crisis should be r e s o l v e d .

The easing of the c r i s i s i n t h e e n d seems t o have

rested more upon t h e commitment of various factions to

finding a solution rather than on a c l e a r consensus

 1 12

concerning what a c t i o n s should be taken to find a solution.

Thus the private sector v o l u n t a r i l y agreed to reduction in

energy use; the government used a moral argument with

business and consumers to persuade them t o reduce energy

demand for oil-based energy. The lack of direct intervention

by the government even stimulated s t r u c t u r a l change in

Japanese industry because the market was able to determine

which industry could be adaptable to the crisis. Business

was responsible i n r e f r a i n i n g from pursuing excessive

profits during this period. This thesis suggests that the

Japanese reaction to the o i l crisis was distinctive in the

way that the various sectors of Japanese society were

willing t o make a v o l u n t a r y commitment to national goals

with only l i m i t e d d i r e c t government intervention in the

market mechanism.

Ultimately the understanding of the Japanese system may

involve more r e s e a r c h into this question of the voluntary

commitment to national goals at a l l l e v e l s of the society

rather than the i n v e s t i g a t i o n of the concept of consensus.

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Y a n a g i d a , K u n i o . Ohkami ga Yatte Ki ta Hi. Tokyo: Bungei

Shunju, 1979.
 APPENDIX

A J A P A N E S E V I E W ON CANADA'S R E A C T I O N TO THE 1973 OIL CRISIS

In order to understand the c h a r a c t e r i s t i c s of Japan's

reaction to the 1973 o i lcrisis, i t i s worthwhile to pay

attention to the reactions of other countries. In this

respect, this appendix reviews some a s p e c t s o f Canada's

reaction to the o i lcrisis focusing on the differences

between the Japanese reaction'and the Canadian reaction.

Table A-1 compares some a s p e c t s o f Canada's reaction to the

crisis to those of Japan's reaction by adding the related

information to Table 1-3 i n Chapter One. In the following

sections Canada's reaction to the 1973 o i lcrisis is

reviewed from the political and the economic aspects.

1. THE POLITICAL ASPECTS

Oil i s no less important f o r Canada than f o r Japan. It

is an important item f o r Japan because Japan i s lacking in

domestic o i l reserves. I t i s also an important item for

Canada because Canada p o s s e s s e s large domestic reserves. In

this section the p o l i t i c a l a s p e c t s of Canada's reaction to

the 1973 o i lcrisis are investigated. I t i s necessary to

review the historical development of Canadian energy policy

1 16
 1 17

after World War II before investigating the political

aspects.

Canadian energy policy before the 1973 o i lcrisis can

be divided into two s t a g e s . The first stage started in 1946

and ended i n 1959. The second stage started i n 1959 and

ended i n 1973. In 1946 a new o i l field was discovered in

Leduc, Alberta, by Imperial O i l L t d . I t was the first

incident i n the postwar development of the o i l industry in

the western p r o v i n c e s . A major c h a r a c t e r i s t i c of this stage

was that o i l transactions i n Canada were g e n e r a l l y based on

the market mechanism. Most of the o i l produced i n the

western p r o v i n c e s was exported to the United States at the

U.S. domestic o i lprice. On the o t h e r hand, the e a s t e r n

provinces imported o i l from foreign countries such as

Venezuela at the international price because the U.S.

domestic price was higher than the international price due

to t h e U.S. o i l import quota policy. Since Canadian o i l was

mostly produced by subsidiaries o f U.S. o i l companies, i t

was reasonable f o r the U n i t e d S t a t e s to t r e a t Canadian o i l

as "domestic o i l " by letting i t be an e x c e p t i o n t o the quota

system. Canadian people welcomed this policy because they

needed c a p i t a l t o develop their o i l reserves which, they

believed, existed beyond their concern for scarcity. This

situation continued until t h e end of the 1950's. The Royal

Commission on Canada's Economic Prospects d e s c r i b e d the

Canadian energy scene in i t s final reports as follows:

Our r e s o u r c e s of t h e s e f o s s i l f u e l s , a l t h o u g h v e r y
l a r g e , a r e n o t o f c o u r s e i n e x h a u s t i b l e ; a n d i t may
 118

be t h a t i n r e t r o s p e c t t h e p e r i o d w i l l s e e m l i t t l e
more t h a n a n i n t e r l u d e . B u t i t p r o m i s e s t o be a
great feast while i t l a s t s . 1 2 9

On t h e other hand, John D a v i s analyzed therelationship

between economic growth and energy use i n "Canadian Energy

Prospects" (Davis R e p o r t ) w h i c h was p u b l i s h e d i n M a r c h , 1957

as part of thea c t i v i t i e s o f t h e Royal Commission on

Canada's Economic Prospects. The D a v i s R e p o r t drew t h e

attention of Canadian people t o t h e i r energy use. Responding

to the increased a t t e n t i o n , t h e government established the

Royal Commission on E n e r g y i nOctober, 1957. The commission

emphasized the importance of marketing s t r a t e g i e s i n further

developing t h eCanadian o i l industry. The commission stated:

The h i s t o r y o f t h e i n d u s t r y i n C a n a d a s i n c e t h e
d i s c o v e r y o f t h e L e d u c f i e l d i n A l b e r t a i n 1947
s h o w s t h a t some s e c t i o n s o f t h e i n d u s t r y h a v e
d i r e c t e d greater e f f o r t s towards t h e f i n d i n g and
production of o i l rather than t o c o n s i d e r a t i o n s of
m a r k e t s . I t i s o n l y w i t h i n recent months t h a t world
c o n d i t i o n s i n t h e i n d u s t r y have emphasized t h e
importance of expanding markets simultaneously with
the p r o v i n g and development o f r e s e r v e s . 1 3 0

Based on t h i s understanding, t h ecommission recommended t h e

establishment of a National Energy B o a r d . The main character

of t h e b o a r d was e x p l a i n e d as follows:

The N a t i o n a l E n e r g y B o a r d , a s a p e r m a n e n t body o f
the Government o f Canada, p r o v i d e s a forum where t h e
industry can discuss i t s problems a t t h e Canadian
g o v e r n m e n t l e v e l . What i s p e r h a p s o f more
importance, t h i s Board a s an agent o f t h e Government
can and should keep i n c l o s e t o u c h a t a l l times w i t h
the i n d u s t r y , i n a l l i t s phases, and w i t h i t s

C a n a d a , R o y a l C o m m i s s i o n on C a n a d a ' s E c o n o m i c
1 2 9
Prospects,
Final Report, ( O t t a w a : E d m o n d C l o u t i e r C.M.G., O.A., D . S . P .
Queen's P r i n t e r a n d C o n t r o l l e r o f S t a t i o n e r y , 1958), p. 127.
C a n a d a , R o y a l C o m m i s s i o n o n E n e r g y , Second
1 3 0
Report Ottawa:
E d m o n d C l o u t i e r C.M.G., O.A., D . S . P . Q u e e n ' s P r i n t e r a n d
C o n t r o l l e r o f S t a t i o n e r y , 1 9 5 9 ) , p p . 6-33 - 6-34.
 119

p r o b l e m s , a s t h e s e have a b e a r i n g upon t h e
p r o s p e r i t y o f t h eC a n a d i a n economy a n d o f t h e
industry i t s e l f . Consequently, we b e l i e v e t h a t t h e
problems i n v o l v e d i n such l i c e n s i n g procedure c a n
and s h o u l d be r e s o l v e d t h r o u g h d i s c u s s i o n s between
that Board and t h e industry i t s e l f . 1 3 1

The commission a l s o suggested that "Canadian crude should

supply the Montreal refinery area." 1 3 2

This recommendation

was further explained as follows:

In o t h e r w o r d s , i n o u r o p i n i o n , i f i t s h o u l d become
a d v i s a b l e t o move C a n a d i a n c r u d e . t o M o n t r e a l i n
order t o m a i n t a i n a h e a l t h y o i l i n d u s t r y i n Canada,
t h e n a l i c e n s i n g s y s t e m i n v o l v i n g r e s t r i c t i o n s on
the i m p o r t a t i o n o f o v e r s e a s o i l would be
necessary. 1 3 3

Canadian energy policy entered into t h esecond stage

when the N a t i o n a l Energy Board (NEB) was e s t a b l i s h e d i n

1959. As a main c h a r a c t e r i s t i c of this stage, t h e government

intervention i n t h eo i l market through t h e NEB s t a r t e d . T h e

NEB was g i v e n theroles o f r e g u l a t i n g t h ec o n s t r u c t i o n and

operation of interprovincial and international pipelines,

monitoring energy production a n d a d v i s i n g t h eCabinet on

energy related issues, and l i c e n s i n g trade i no i l , gas and

electricity subject t o t h ea p p r o v a l o f t h eCabinet. In 1961

the National O i lPolicy was a n n o u n c e d . A s a r e s u l t , t h e

Canadian o i l market was s e p a r a t e d into two r e g i o n s . The

region west o f t h e O t t a w a V a l l e y was r e s e r v e d f o r domestic

oil, and t h eregion east o f i t was open f o r imported o i l .

Under t h eN a t i o n a l O i l P o l i c y theinfluence of the

United States became stronger. Canadian energy policies

Ubid.
1 3
, p. 6-28.
Ibid.
y 3 2

* Ibid.,
3 3
p. 6-29.
 120

during t h e 1960's were even recognized as " e x t e n s i o n s of

American mandatory import system." 1 3

" Reserved f o r Canadian

oil produced b y U.S. capital i n the western provinces, the

region west of t h e Ottawa Valley became a p a r t o f t h e U.S.

oil market.

From the late 1960's t h e r e l a t i o n s h i p between Canada

and the United States gradually changed. On the Canadian

side the increased energy consumption during the ^ 6 0 ' s

strengthened the energy security concept of Canadians. On

t h e U.S. side, especially after the Arab-Israeli War i n

1967, t h e U.S. government became increasingly concerned over

oil b o y c o t t s by A r a b countries and t h e i r influence on t h e

U.S.-Canada energy trade. The o i l b o y c o t t s w o u l d also

decrease Canadian o i l imports and Canadian o i lexports to

the United States. As a r e s u l t , the United States expressed

its desire for contracting a formal energy pact with Canada.

For instance, t h e Nixon government cut o i l imports from

Canada t o p r e s s Canada into a long term energy agreement. 1 3 5

Canadian Energy Minister Greene emphasized three points

in r e s p o n d i n g t o t h e U.S. import c u t :

. . . Canadian public opinion i s i n t e r p r e t i n g t h i s

a s a p r e s s u r e p l a y , t o s q u e e z e C a n a d a i n t o some f o r m
o f e n e r g y d e a l w h i c h w o u l d n o t be t o t h e C a n a d i a n
advantage. 1 3 6

. . . C a n a d i a n g a s w i l l be a v a i l a b l e t o s u p p l e m e n t
United States supplies only i f our petroleum
i n d u s t r y as a whole r e c e i v e s t h e i n c e n t i v e s of
p r o g r e s s i v e growth and a s s u r e d s t a b i l i t y of a c c e s s
to e x p o r t markets f o r o i l and n a t u r a l gas

J a m e s L a x e r , Canada's
1 3 f t
Energy Crisis ( T o r o n t o : James
L o r i m e r & Company P u b l i s h e r s , 1 9 7 5 ) , p. 7 1 .
/ f c / r f . , p. 75.
1 3 5

/6/rf.
1 3 6
 121

liquids. 1 3 7

. . . I t must be l e f t t ou s , t o C a n a d i a n s , t o
evaluate the matter o f o i l supply s e c u r i t y i n
e a s t e r n Canada a n d t ot a k e any a p p r o p r i a t e
action. 1 3 8

Responding t ot h i s President Nixon emphasized "Canadian

identity" i n h i s speech during his visit t o Ottawa i n 1972.

However, a s f a r a s the g a s e x p o r t s a n d the o i l s u p p l y t o

eastern Canada were c o n c e r n e d , t h e U n i t e d States did not

really have t o worry about Greene's s t a t e m e n t . I n September

1970, the Canadian government approved the largest gas

exports t othe United States even though the o i l import cut

by t h e U.S. g o v e r n m e n t was s t i l l c o n t i n u e d . I nJanuary 1973,

Greene's successor a s energy minister, Donald Macdonald,

admitted that he h a d been engaged i nsecret negotiations

with the United States concerning the o i l supply t o eastern

Canada. 1 3 9

Canadian concerns f o r energy security were embodied i n

"An Energy Policy f o r Canada" p r e s e n t e d i nJune 1973. This

report discusses four cases o f energy development with

required capital costs. " 1 0

However, the o i l c r i s i s of late

1973 had large impacts which went beyond any of the four

cases discussed i nthe report.

Even before the c r i s i s , the gradually rising price of

oil was d r a w i n g more a n d more a t t e n t i o n o fCanadian people

to problem o f how t h e i r domestic o i l might b e s t be used.

* Ibid.
3 7
rp." 7 6 .
Ibid.
1 3 B

/fc/rf., p. 77.
1 3 9

C a n a d a , M i n i s t r y o f E n e r g y , M i n e s a n d R e s o u r c e s , An
1 f l 0

Energy Policy for Canada, Phase 1, V o l . 1: Analysis (Ottawa:

I n f o r m a t i o n Canada, 1973), pp. 210-216.
 122

Under the British North America Act, the provinces owned the

natural resources within their boundaries. On the other

hand, the federal government c o n t r o l l e d commerce involving

interprovincial or international trade. Following this rule,

the federal government insisted on i t s jurisdiction over

Canadian o i l across provincial and international boundaries,

and announced crude o i l export c o n t r o l s to begin on March 1,

1973. Though the export quota s e t by the National Energy

Board was not so restrictive mainly because the o i l supply

had a l r e a d y become t i g h t , the federal government steadily

strengthened this stance as o i l prices increased. In

addition, i n September 1973, Prime M i n i s t e r T r u d e a u made an

announcement i n which the National O i l Policy was

scrapped. 1 a 1
His announcement c o n s i s t e d of three points:

freezing the o i l price i n Canada until January 30, 1974;

moderating the i n f l u e n c e of high o i l prices i n the U.S. o i l

m a r k e t ; and discussion with provinces and industries on

pipelines. On the one hand, the Trudeau government intended

to keep the Canadian domestic o i l price lower than the

international o i l price. On the other hand, i t imposed tax

on o i l exports and used a part of the tax revenue to

subsidize domestic manufacturers mainly located in Ontario

and Quebec.

The western provinces also intended to u t i l i z e their

oil reserves for their benefits. In February 1973, Peter

Lougheed, Premier of A l b e r t a , declared,"Alberta crude

1
" 1
James L a x e r , op. cit., pp. 84-85.
 123

belongs t o t h e people of A l b e r t a . " * 1 2

He t r i e d to destroy

the federal export taxpolicy by r a i s i n g provincial

royalties. * 1 3
The B l a k e n e y government of Saskatchewan

decided to introduce a provincial t a x on o i l c o m p a n i e s

operating i n the province i n December 1973.

The conflict between t h e f e d e r a l government and t h e

western provinces was c h a r a c t e r i z e d b y t h e s t r u g g l e f o r the

windfall profits o f the. o i l c r i s i s . There were also

important historical and economic elements. I t was s o m e t i m e s

pointed out that Ontario had helped develop the Alberta

petroleum i n d u s t r y by p a y i n g the higher o i l price during the

1960's. 1 4 4
In "Ontario Energy Report" published in 1973,

John J . Deutch described the National O i l Policy as follows:

The N a t i o n a l O i l P o l i c y was d e s i g n e d t o s t i m u l a t e
western Canadian o i l p r o d u c t i o n and t o promote
C a n a d i a n development by m a x i m i z i n g t h e d o m e s t i c u s e
of Canadian o i l w h i l e a l l o w i n g i m p o r t s t o s e r v e t h a t
part of eastern O n t a r i o i d e n t i f i e d w i t h t h e Ottawa
V a l l e y and t h e remainder o f e a s t e r n Canada. P r i o r t o
1961, O n t a r i o ' s d o m e s t i c c r u d e o i l s u p p l y was
augmented by d e c r e a s i n g , b u t s t i l l a p p r e c i a b l e ,
q u a n t i t i e s of lower cost imported crude o i l . 1 4 5

It i s observed that the Ontario government represented the

interests of manufacturers i n the province while the Alberta

government represented that of o i l producers i n the

province. I t i s even more important t h a t major segments of

both Ontario's manufacturers and A l b e r t a ' s o i l producers a r e

" 2
I b i d . , p. 79.
1 4 3
Lester A. S o b e l , e d . Energy Crisi s, Vol. 1 (1969-1973)
(New Y o r k : F a c t s o n F i l e , I n c . , 1 9 7 4 ) , p . 2 3 9 .
J a m e s L a x e r , op.
1 4 4
c i t . , p. 92.
C a n a d a , O n t a r i o , A d v i s o r y C o m m i t t e e o n E n e r g y , Energy
1 4 5
in
Ontario, 2 v o l s . ( T o r o n t o : The Government o f O n t a r i o , ' 1973),
p. 132.
 124

owned by U.S. c a p i t a l . Canada's p o l i t i c a l reaction t othe

oil crisis reflected not only i t s g e o g r a p h i c a l background

but also i t s economic background.

2. THE ECONOMIC A S P E C T S

(1) M a j o r Changes i n t h e C a n a d i a n Economy

As f a ras b a s i c economic statistics a r e concerned, the

economic situation o f Canada around t h e 1973 o i l c r i s i s was

better than that of Japan. As shown i n Table 3-12 o f C h a p t e r

Three, Canada m a i n t a i n e d h i g h growth rates at least until

the first half o f 1 9 7 4 . On t h e c o n t r a r y , the growth rate of

Japan was c o n s i d e r a b l y decreased from 11.0% i n 1971-72 t o

-3.3% i n 1974. (However, t h e r a t e increased t o 3.0% i n t h e

second half o f 1 974.)

The c o m p a r a t i v e l y good c o n d i t i o n of t h e Canadian

economy i salso indicated by t h e i n t e r n a t i o n a l comparison of

consumer price indices i n T a b l e A - 2 . The a v e r a g e annual rate

of change from 1973 t o 1974 was 1 0 . 9 % f o r C a n a d a , w h i c h was

the lowest figure except f o rthat o f Germany. The c u r r e n t

account b a l a n c e s of major industrial countries i n T a b l e A-3

further show t h a t Canada m a i n t a i n e d a c o m p a r a t i v e l y good

economic situation. Though t h e c u r r e n t b a l a n c e s o f Canada i n

1974 was d e f i c i t , t h e amount of the d e f i c i t was s t i l l

smaller than those of the United States and Japan.

 125

There a r e , however, s e v e r a l s t a t i s t i c s which indicate

economic problems i n C a n a d a . T a b l e A-4 shows the volume of

Canadian trade. In t h i s table i t i s clear that the increase

rate of imports was higher than that of exports i n 1974 and

1975. As a result, the balance of Canada's merchandise trade

was in deficit i n 1975. The increase i n Canada's imports is

partly explained by t h e e x p a n s i o n of Canada's domestic

demand. F o r i n s t a n c e , Table A-5 shows that both labour

income and p r o f i t s per u n i t of output increased from 1973 t o

1974 d e s p i t e the decrease in real GNP. On t h e one h a n d , t h e

increase i n labour income and p r o f i t s contributed to the

expansion of the domestic d e m a n d . On the other hand,

however, both u n e m p l o y m e n t .and l a b o u r p r o d u c t i v i t y decreased

and labour cost per u n i t of output increased. These elements

usually decrease the competitive power of the i n d u s t r y .

The 1973 o i l c r i s i s c o n t r i b u t e d to the increase i n both

profits and labour income of Canadian people. Therefore,

there was not strong pressure on C a n a d i a n industry to

increase i t s productivity. This contrasted with the Japanese

case i n which the o i l c r i s i s decreased profits and labour

income and Japanese i n d u s t r y had t o i n c r e a s e i t s

productivity t o overcome t h e c r i s i s . I t i s important to

point out that the a v a i l a b i l i t y of o i l i n Canada discouraged

the effort to increase the p r o d u c t i v i t y and i n the long run

decreased the competitive power of Canadian industry. 1 4 6

D o n a l d J . Daly pointed out that the increase i n per u n i t

1 4 6

l a b o u r c o s t s i n Canada d e c r e a s e d t h e c o m p e t i t i v e power o f
C a n a d i a n i n d u s t r y . See D o n a l d J . D a i l y , "Canada's
I n t e r n a t i o n a l C o m p e t i t i v e P o w e r " ( T h i s p a p e r was prepared
 126

(2) The Basic Characteristics of Canadian Industry

The industrial c o m p o s i t i o n of Canada i s shown i n Table

A-6 and Table 3 - 7 . T a b l e A-6 shows the production shares of

industrial sectors. The share of primary industry gradually

decreased and those of secondary and t e r t i a r y industries

gradually increased. This trend i s more apparent i n Table

A-7. The employment share of primary industry and secondary

industry decreased, and o n l y t h a t of the t e r t i a r y industry

increased. As f a r as the e f f e c t s of the o i l c r i s i s are

concerned, i t i s important to investigate the s i t u a t i o n of

primary industry as a s u p p l i e r of o i l and gas and secondary

industry as a consumer of them.

Compared t o Japanese industry, Canadian industry has

two major characteristics: the high ratio of foreign

ownership of companies and t h e i r geographical location. The

foreign ownership and c o n t r o l of Canadian industry i s

summarized i n Table A-8. In 1967, t h e f o r e i g n ownership and

control i n the manufacturing sector were 52% and 57%

respectively. As shown i n the table most of the foreign

ownership and c o n t r o l were i n t h e h a n d s o f U.S. companies.

The foreign ownership and c o n t r o l were s t i l l higher i n the

petroleum and n a t u r a l gas s e c t o r . I n 1967, b o t h of them were

more than 6 0 % . The ownership and c o n t r o l by t h e U n i t e d

States were more than 50%. Though the foreign ownership

decreased from 6 2 % i n 1967 t o 5 9 % i n 1 9 7 3 , t h e foreign

( c o n t ' d ) f o r N a t i o n a l Economic Conference

1 4 6
held i n Ottawa
f r o m M a r c h 22 t o 2 3 , 1 9 8 5 . )
 127

control increased from 74% to 79%.

The location of major industries i s shown i n the

following tables. T a b l e A-9 shows t h e l o c a t i o n of

exploitable o i l reserves i n Canada. About 80% i s located in

Alberta and 14% i s located i n S a s k a t c h e w a n . On the other

hand, T a b l e A-10 shows t h e s h a r e s of p r o v i n c e s i n the

manufacturing sector. More t h a n 75% of employees engaged in

manufacturing worked in Ontario and Quebec which had 62% of

Canada's total population. Both the p r o d u c t share and the

value added share of these provinces account f o r the same

level. Moreover, T a b l e A—11 shows t h e t o p 10 industrials in

Canada. Among t h e m , two companies were subsidiaries of U.S.

automobile companies in Ontario. Four of the r e s t were

subsidiaries o f U.S. o i l companies exploring mainly in

western provinces.

3. THE C H A R A C T E R I S T I C S OF THE C A N A D I A N R E A C T I O N TO THE OIL

CRISIS

There are three major differences between the Japanese

and the Canadian reaction.

First, under the c e n t r a l i z e d political system the

Japanese bureaucracy implemented v a r i o u s policy measures to

recover from the c r i s i s . In Canada the p o l i t i c a l power was

diversified among t h e federal and provincial governments.

Therefore, i t was difficult to find a strong bureaucratic

power that represented the public interests of Canada. The

political conflicts between the federal and provincial

 128

governments reflected that each government worked for the

interests of i t s supporters rather than to create a

consensus among C a n a d i a n s . In other words, i t seemed to be

less expected i n Canada than i n Japan that the government

should protect the public interest against individual

interests.

Secondly, the 1973 o i l crisis s h o w e d how vulnerable the

Japanese economy was, and Japan's reaction to the crisis

s h o w e d how flexible the Japanese economy was. The Canadian

e c o n o m y was less vulnerable as f a r as the availability of

oil was concerned. Indeed, Canada took advantage of the

increase i n i n t e r n a t i o n a l o i l p r i c e s . The increase in

international o i l prices provided o i l producing provinces

with a revenue increase and the f e d e r a l government with

funds to subsidize eastern manufactures. The 1973 o i l crisis

provided Canadian industry with a chance to increase profit

and labour income rather than increase p r o d u c t i v i t y . As a

result, Canadian industry faced a decrease in i t s

competitive p o w e r when o t h e r industrial countries including

Japan recovered from the crisis. This example s h o w s how a

short term benefit for i n d u s t r y damaged t h e industry in the

long term.

Thirdly, Japanese business played an important role in

Japan's reaction to the crisis. Japan's recovery from the

crisis was largely owing to the rationalization efforts by

Japanese companies based on the m a r k e t m e c h a n i s m . On the

other hand, the Japanese cooperated with the government in

 129

inplementing p o l i c y measures including administrative

guidance. It is difficult to imagine that the Japanese model

of administrative guidance would work in a country like

Canada. F i r s t , Canadian business does not seem t o expect the

government to take on the r o l e of the central coordinator.

Secondly, since administrative guidance is usually used as a

means t o control business a c t i v i t i e s for the longer term

benefit of the industry or the broader benefit of Japan, i t

is not e f f e c t i v e i n Canada where the short term benefit

often seems t o be more important than the long term benefit.

Finally, the Canadian reaction can be compared to the

Japanese reaction by considering U.S. influence. As stated

in Chapter One, U.S. influence was very strong in the

process of decision-making in Japan. The influence was

apparent i n two areas. First, most J a p a n e s e o i l companies

were s u b s i d i a r i e s of U.S. o i l companies. Even independent

Japanese o i l companies were dependent on U.S. companies for

the o i l supply. For instance, then MITI M i n i s t e r Nakasone

had to ask representatives of Tokyo o f f i c e s of U.S. o i l

companies to maintain their o i l supply to Japan. Secondly,

Japan's foreign diplomacy had been based on a close

relationship with the United States. Since the announcement

of Arab countries included the o i l export ban against the

United States, i t was difficult for Japan to take pro-Arab

stance. H o w e v e r , on the other hand, Japan wouldn't have been

able to survive the o i l crisis without the o i l supply from

the Middle East. I t was reported that this dilemma was

 130

expressed by then Prime M i n i s t e r Tanaka at a meeting with

t h e n U.S. State Secretary Kissinger.

Compared w i t h the basic position of Japan stated above,

the Canadian position was more c o m p l i c a t e d . S i n c e Canada

imported o i l f r o m V e n e z u e l a , one of t h e OPEC countries,

Canada was not able to ignore t h e OPEC i n t e r e s t . For

instance, Energy Minister Donald Macdonald said i n November

5, 1973 that Canada might bar some r e f i n e d product exports

if r e q u e s t e d by the A r a b s . * 1 7
However, most of the Canadian

petroleum exports to the United States were of c r u d e o i l .

Therefore, major attention was paid t o the use of windfall

profits by maintaining exports to the United States.

U.S. influence on Canada s e e m e d t o be stronger in

dealing with Canada's domestic issues. In the area of

domestic issues, the Canadian case was contrasted to the

Japanese one. In the case of Japan, major efforts were made

to decrease o i lconsumption. In the short term, the

government announced guidelines t o d e c r e a s e the use of

electricity and gasoline. Companies were a l s o requested to

cut their operation. In the long term, the government

pointed out the importance of energy conservation and the

development of a l t e r n a t i v e energy sources. Moreover,

Japanese companies increased energy efficiency in their

production process in order to survive the severe economic

situation. For instance, after reviewing Japan's energy

policies through the first and second o i lcrises, P. Nemetz,

1
* Lester
7
A. Sobel, ed. op. cit., p. 239.
 131

I. Vertinsky a n d P. V e r t i n s k y concluded as follows:

It i s a l s o probable that Japan w i l l continue i t s

pragmatic respect o f long-term i n t e r n a t i o n a l market
r e a l i t i e s and w i l l not myopically e x p l o i t
opportunities f o r short-term gains that generate
high, longer-term costs of uncertainty. " 1 8

There was a g e n e r a l consensus i nJapan t o decrease

Japan's dependence on o i l . I n t h e case o f Canada, i t was

more d i f f i c u l t t o b u i l d consensus. First, the western

provinces, a s OPEC c o u n t r i e s , were b a s i c a l l y p l e a s e d with

the o i l price increase while t h eeastern provinces suffered

from i tas Japan did. (The e a s t e r n provinces obtained

subsidies which Japan didn't.) Secondly, both manufacturing

and o i l producing companies were m o s t l y c o n t r o l l e d b y U.S.

capital. As a r e s u l t , i t became v e r y difficult to build a

consensus i n Canada a s a c o u n t r y and t o b u i l d long term

industrial strategy on a n a t i o n a l basis. Some a s p e c t s o f

Canadian economic problems which have become more serious i n

the increased political and economic tension i n t h e 1980's

can be a t t r i b u t e d t o t h el a c k of consensus and n a t i o n a l

economic strategies.

1
" P . N . N e m e t z , I . V e r t i n s k y a n d P. V e r t i n s k y , " J a p a n ' s
8

E n e r g y S t r a t e g y a t t h e C r o s s r o a d s " , Pacific Affairs V o l . 57,

No. 4 ( V a n c o u v e r : U n i v e r s i t y o f B r i t i s h C o l u m b i a , W i n t e r
1984-85), p. 576.
 1 32

4. TABLES

T A B L E A-1

SOME A S P E C T S OF T H E J A P A N E S E AND C A N A D I A N REACTIONS TO T H E

1973 O I L C R I S I S

=JAPAN= =CANADA=

POLICIES SITUATIONS SITUATIONS POLICIES

Scarcity i n Wealth i n
domestic domestic
energy energy
resources resources
i i
Decrease of * Dependence on Regional Development of
vulnerability foreign divergence domestic o i l
by e f f i c i e n t supplies i n d u s t r y by
use o f National O i l
imported Policy
resources
OIL CRISIS
./ \i
N a t i o n - w i d e «— H i g h e r S h i f t o f power-*Federal
e f f o r t s on vulnerability from East t o government
-Energy West a n d intervention
conservation conflicts by
-Development between them -Export
of a l t e r n a t i v e control
energy sources -Taxes
-Increase of -Subsidies
productivity
I => I n c r e a s e d Decreased «_
competitive competitive
power o f power o f
industry industry

TRADE F R I C T I O N
 133

T A B L E A-2

CONSUMER PRICE INDICES: INTERNATIONAL COMPARISON

- 1970=100, 1970 w e i g h t s -
1973 1974 A . A . R.C.
I II I I I IV I II I I I I V 1973 1974

CAN. 111. 9 1 1 4. 5 1 1 7 . 7 119 .8122. 7 126. 8130. 6 1 3 4 .2 7. 6 10. 9

U.S. 110. 7 1 1 3. 1 1 1 5 . 6 118 .3121. 6 1 2 5 . 1 1 2 8 .9 1 3 2 .6 6. 2 1 1 .0
U.K. 1 2 2 .2 1 25.2127. 7 131 .8137. 2 145. 3149. 4 156. 1 9. 2 16. 0
FRA. 1 1 5 .9 118 . 2 1 2 1 . 1 124 .4129. 0 1 3 4 .31 3 8 . 7 1 4 3 .1 7. 3 13. 6
GER. 1 1 6 .0 •118 . 2 1 1 9 . 3 121 .7124. 6 1 2 6 .6 1 2 7 . 8 1 2 9 .5 6. 9 7. 0
ITA. 117. 5 121 . 3 1 2 3 . 6 127 .2133. 6 1 4 0 .81 5 0 . 4 1 6 0 .0 1 0 . 8 19. 1
JAP. 1 1 6 .9 1 22 . 7 1 2 6 . 5 131 .9144. 1 1 5 0 .51 5 6 . 1 1 6 2 .7 1 1 .7 24. 4

S o u r c e : C a n a d a , M i n i s t r y o f F i n a n c e , Economic Review,
A p r i l 1 9 7 5 , ( O t t a w a : I n f o r m a t i o n C a n a d a , 1 9 7 5 ) , p . 1 0 ; OECD.
OECD Main Economic Indicators. F e b r u a r y , 1975

N o t e : CAN.=Canada, U . S . = U n i t e d S t a t e s , U . K . = U n i t e d
K i n g d o m , F R A . = F r a n c e , GER.=W.Germany, I T A . = I t a l y ,
JAP.=Japan, A.A.R.C.=Average a n n u a l r a t e o f change.
 134

TABLE A-3

CURRENT B A L A N C E S OF MAJOR I N D U S T R I A L COUNTRIES

- OECD e s t i m a t e s seasonally adjusted, billion US d o l l a r s -

1 973 1974

Canada -0.43 -1 .50

United States 0.51 -3.25
Japan -0.14 -4.75
Australia-New Zealand 0.79 -3.20
Belgium-Luxemberg 1 .40 0.25
France -0.68 -7.50
Germany 4.54 9.00
Italy -2.42 -8.30
Netherlands 1 .75 1 .50
Sweden 1.14 -0.70
Switzerland 0.28 0.00
U n i t e d Kingdom -3.11 -9.00
T o t a l OECD 2.50 -37.50

Source: Canada, M i n i s t r y of F i n a n c e , Economic Rev iew,

A p r i l , 1975, (Ottawa: I n f o r m a t i o n Canada, 1975), p. 13;
OECD, OECD Economic Outlook, D e c e m b e r , 1 9 7 4 .

Notes:
1. T h e f i g u r e s o f B e l g i u m - L u x e m b o u r g a r e b a s e d o n t h e
e s t i m a t e by t h e s e c r e t a r i a t on a t r a n s a c t i o n b a s i s .
2. T h e f i g u r e s o f F r a n c e a r e b a s e d o n t r a n s a c t i o n s w i t h
all countries.
 135

TABLE A-4

CANADIAN MERCHANDISE TRADE

- m i l l i o n Canadian d o l l a r s -
1973 1974 1975 1976

Exports 25,461 32,591 33,347 38,019

Imports 22,726 30,893 33,986 36,887
Trade 2,735 1 ,698 -639 1 ,132
balance

S o u r c e : Canada, M i n i s t r y o f F i n a n c e , Economic Review,

May 1977, ( O t t a w a : M i n i s t e r o f S u p p l y a n d S e r v i c e , 1977), p,
58; S t a t i s t i c s C a n a d a , Quarterly Estimate of the Canadian
Balance of International Payments, C a t . 67-001.
 136

TABLE A-5

CHANGES I N LABOUR COSTS AND P R O F I T S P E R U N I T OF OUTPUT

- Percentage change, year -over-year -

1972 1973 1974

R e a l GNP 5.8 6.8 3.7

Employment 3.1 5.2 4.3
Labour p r o d u c t i v i t y 2.6 1 .5 -0.6
"Labour income" 11.0 12.5 16.8
Labour income p e r 7.6 7.0 12.0
employed person
Labour cost p e r unit 4.9 5.4 12.6
of o u t p u t
P r o f i t s per unit of 14.5 27.0 23.9
output
Price deflator - 4.6 6.2 11.2
Total domestic
demand
P r i c e d e f l a t o r - GNP 4.8 7.6 13.1

S o u r c e : C a n a d a , M i n i s t r y o f F i n a n c e , Economic Review,
April, 1975 ( O t t a w a : I n f o r m a t i o n C a n a d a , 1 9 7 5 ) , p . 5 3 ;
S t a t i s t i c s C a n a d a , The Labour Force, Monthly, C a t . 71-001;
, National Income and Expenditure Accounts, Quarterly,
Cat. 13-001. .
 1 37

T A B L E A-6

P R O D U C T I O N S H A R E S BY S E C T O R S , S E L E C T E D Y E A R S 1870-1974

- % of Gross Domestic Product a t Factor Cost -

1870 1911 1926 1960 1970 1980

Primary 46.2 39.4 23.4 10.4 8.3 10.9

-Agriculture 34.3 30.8 18.1 4.9 3.3 3.3
-Forestry 9.9 4.6 1 .3 1 .3 0.8 0.9
-Fishing & 1. 1 1 .5 0.8 0.2 0.2 0.2
trapping
-Mining, 0.9 2.5 3.2 4.0 4.0 6.5
quarrying, o i l
wells
Secondary 22.6 29.7 38.7 44.8 41 .4 39.4
-Manufacturing NA 18.8 21.7 26.4 23.3 21.6
-Construction NA 10.3 4.1 6.0 6.3 5.8
-Transportat ion NA NA 12.9 9.6 8.9 8.5
& communication
- E l e c t r i c power, NA 0.6 2.8 2.9 3.5
gas & water
utilities
Tertiary 31 .2 1
30.8 1
37.9 44.8 50.2 49.1
-Wholesale - NA NA 11.6 12.8 12.4 11.0
r e t a i l trade
-Finance, NA NA 10.0 10.6 11.3 10.6
insurance, real
estate
-Public NA NA 3.4 6.9 7.3 7.5
administration,
defence
-Service NA NA 12.9 13.5 19.2 20.6
TOTAL 100.0 100.0 100.0 100.0 100.0 100.0

S o u r c e : C h i s t o p h e r G r e e n , Canadian Industrial
Organiztion and Policy, 2nd e d . ( T o r o n t o : M c G r a w - h i l l
R y e r s o n L i m i t e d , 1 9 8 5 ) , p . 4; M.C. U r q u h a r t a n d K . A . H .
B u c k l e y , Historical Statistics of Canada (Cambridge:
M a c m i l l a n , 1965), S e r i e s E 46-45, E 202-213, E 214-44 f o r
1970, 1 9 1 1 , a n d 1926; s e c o n d e d i t i o n , 1 9 8 3 , s e r i e s F 56-75
f o r 1 9 6 0 a n d 1 9 7 0 ; S t a t i s t i c s C a n a d a , National Income and
Expenditure Accounts, C a t . 31-201 ( O t t a w a : December 1 9 8 1 ) ,
T a b l e I I I , p. 97, f o r 1980.

Notes:
1ncludes
1
income g e n e r a t e d by t h e r a i l w a y and telephone
industries.
 138

T A B L E A-7

EMPLOYMENT S H A R E S BY ECONOMIC SECTOR AND INDUSTRY

- % -
1947 1960 1970 1975 1980 1982

Primary 27.5 14.3 9.3 7.8 7.3 6.9

-Agriculture 24. 1 11.3 6.5 5.2 4.5 4.4
-Forestry 1 .2 1. 1 0.9 0.9 0.7 0.6
-Fishing & 0.7 0.4 0.3 0.3 0.3 0.3
trapping
-Mining, 1 .5 1 .5 1 .6 1 .4 1 .8 1 .6
quarrying, o i l
wells
Secondary 40.3 40.7 37.5 37.3 34.0 32.0
-Manufacturing 26.7 24.9 22.7 22. 1 19.7 18.2
-Construction 5.2 7.2 6.0 6.5 5.8 5.6
-Transportation 7.7 7.5 7.7 7.6 7.3 7.1
& communication
Public utilities 0.7 1. 1 1 .1 1. 1 1 .2 1. 1
Tertiary 32. 1 45.0 53.2 54.9 58.7 61.1
-Trade 12.3 16.2 16.7 17.2 17.2 17.4
(wholesale,
retail)
-Finance, 2.7 3.8 4.6 4.9 5.7 5.7
insurance, real
estate
-Community, 25.7 26. 1 28.9 30.8
business,
personal 17.1 25.0
services (incl.
health,
education)
-Public 6.2 6.7 6.9 7.2
admini s t r a t ion
TOTAL 1 00.0 100.0 100.0 100.0 1 00.0 100.0

S o u r c e : C h r i s t p h e r G r e e n , Canadian Indust r i al
Organization and Policy, 2nd ed. (Toronto: McGraw-hill
R y e r s o n L i m i t e d , 1 9 8 5 ) , p . 6; M.C. U r q u h a r t a n d H. B u r k l e y ,
Hi storicai St at i s t i cs of Canada, S e r i e s C 130-151 f o r 1947,
1 9 6 0 ; S t a t i s t i c s C a n a d a , The Labour Force, C a t . 71-001 f o r
1970, 1 9 7 5 , 1980 a n d 1 9 8 2 .
 139

TABLE A-8

FOREIGN OWNERSHIP CONTROL OF C A N A D I A N INDUSTRY

- % -
19 67 19 6 7 ( U S ) 19 7 3 1977 1981
FO FC FO FC FO FC FC FC

Manufacturing 52 57 44 45 53 58 53 45
Mining & 61 65 51 56 51 56 43 1
30 1

smelting
Petroleum & 62 74 51 60 58 75 74 49
n a t u r a l gas
Railways 19 2 8 2 10 6 7 4
Public 19 5 18 5
utilities
A l l sectors 35 35 29 28 34 33 30 25

S o u r c e : C h r i s t o p h e r G r e e n , Canadian Industrial
Organization and Policy, 2nd e d . (Toronto: McGraw-hill
R y e r s o n L i m i t e d , 1 9 8 5 ) , p . 3 5 ; Foreign Ownership and the
Structure of Canadian Industry (Queen's P r i n t e r , 1968), p.
4 2 2 ; f o r 1 9 2 6 , 1 9 4 8 , 1 9 6 3 ; Foreign Direct Investment in
Canada (Gray-Report) (Ottawa: I n f o r m a t i o n Canada, 1972),
T a b l e 4, p . 2 0 , f o r 1 9 6 7 ; S t a t i s t i c s C a n a d a , Corporations and
Labour Union Return Act, Report for 1973; 1977; 1981; Cat.
61-210, s e l e c t e d t a b l e s . D a t a on f o r e i g n o w n e r s h i p , o f
Canadian as w e l l as non-resident c o n t r o l l e d c o r p o r a t i o n s ,
was n o t p u b l i s h e d b y CALURA i n 1977 a n d 1 9 8 1 .

Notes:
1
Does n o t i n c l u d e s m e l t i n g .
FO: F o r e i g n o w n e r s h i p r a t i o ; w h i c h i s d e f i n e d a s e q u i t y
and d e b t c a p i t a l owned by n o n - r e s i d e n t s , a s a p e r c e n t o f
total capital i n industry.
FC: F o r e i g n c o n t r o l r a t i o ; w h i c h i s d e f i n e d a s e q u i t y
and d e b t c a p i t a l owned by r e s i d e n t s a n d n o n - r e s i d e n t s i n
f i r m s whose v o t i n g s t o c k i s c o n t r o l l e d (50%+) by
non-residents, as a percent t o t a l c a p i t a l i n industry.
 140

TABLE A-9

EXPLOITABLE O I L RESERVES I N CANADA

m i l l i o n b a r r e l ( s h a r e , %) -
-
Light o i l Heavy o i l Total

Northwest T e r r i t o r i e s 33 .9 _
33 .9
( 0 . 9) - ( 0 . 7)
British Columbia 151 .3 - 151 .3
( 4 . 0) - ( 3 . 4)
Alberta 3 , 3 6 9 .6 2 6 2 .2 3,631 .8
( 8 9 . 5) ( 3 5 . 5) ( 8 0 . 7)
Saskatchewan 159 .3 4 7 6 .2 6 3 5 .5
( 4 . 2) ( 6 4 . 5) (14. 1 )
Manitoba 46 .3 - 46 .3
( 1 . 2) - (1 . 0)
Ontario 3 .9
( 0 . 1)
-- 3 .9
( 0 . 1)
TOTAL 3 , 7 6 4 .3 7 3 8 .4 4 , 5 0 2 .7
( 1 0 0 . 0) ( 1 0 0 . 0) ( 1 0 0 . 0)

Source: J a p a n , M i n i s t r y o f F o r e i g n A f f a i r s , Zai ka
Kannai Gaikyo (Tokyo: M i n i s t r y o f F o r e i g n A f f a i r s , 1983), p.
229.
 141

TABLE A-10

P R O V I N C I A L S H A R E S I N T H E M A N U F A C T U R I N G SECTOR (1980)

- m i l l i o n C a n a d i a n <d o l l a r s ( s h a r e , %) -
Employees Shipment Value Value
added added
/enployee

Newfoundland 14,379 1 ,097 488 34

(1.1) (0.7) (0.7)
P r i n c e Edward I s l a n d 2,380 234 78 33
(0.2) (0.1 ) (0.1 )
Nova S c o t i a 29,001 3,454 1 , 1 95 41
(2.2) (2.1) (1.8)
New B r u n s w i c k 25,155 3,561 1 ,080 43
(1.9) (-2.1) (1.6)
Quebec 389,901 44,619 18,361 47
(29.0) (26.6) (27.8)
Ontario 648,765 82,171 32,247 50
(48.2) (48.9) (48.9)
Manitoba 43,027 4,364 1 ,770 41
(3.2) (2.6) (2.7)
Saskachewan 15,264 2, 107 788 52
(1.1) (1.3) (1.2)
Alberta 56,988 10,521 3,376 59
(4.2) (6.3) (5.1)
B r i t i s h Columbia 120,961 15,893 6,567 54
(9.0) (9.5) (10.0)
Yukon & N o r t h West 399 30 10 -
Territories (-) (-) (-) (-)
TOTAL 1 , 3 4 6 , 1 60 168,051 65,960 49
(100.0) (100.0) (100.0)

S o u r c e : J a p a n , M i n i s t r y o f F o r e i g n A f f a i r s , Zai ka Kokan
Kannai Gai kyo (Tokyo: M i n i s t r y o f F o r e i g n A f f a i r s , 1983), p.
256.
 142

TABLE A-11

THE TOP TEN INDUSTRIALS (1983)

Rank by S a l e s o r Company (head Foreign Major

sales operating office) ownership shareholders
revenue (%)
($•000)

1 13,805,450 General 100 G e n e r a l

Motors of Motors Corp.
Canada Ltd-. Detroit
(Oshawa,
Ont.)
2 12,759,297 Canadian Power C o r p .
Pacific Ltd. of Canada 12%
(Montreal)
3 8,919,000 Imperial O i l 70 Exxon C o r p . ,
Ltd. New York
(Montreal)
4 8,874,700 B e l l Canada Wide
Enterprise distribution
Inc.
(Montreal)
5 8,580,600 F o r d Motor 90 F o r d M o t o r
Co. o f Canada Co. ,
(Oakville, Dearborn,
Ont.) Mich.
6 6,418,339 Alcan Wide
Aluminium distribution
Ltd.
(Montreal)
7 5,652,000 T e x a c o Canada 90 T e x a c o I n c .
Inc. 68%,
(Toronto) Texaco
International
N.Y. 22%
5,300,000 S h e l l Canada 79 S h e l l
Ltd. Investments
(Toronto) Ltd.
Netherland /
Britain
9 5,078,000 G u l f Canada 60 G u l f O i l
Ltd. Corp.
(Toronto) Pittsburg
10 4,625,100 C a n a d i a n Federal
National government
Railway 100%
(Mtl.)

S o u r c e : C h r i s t o p h e r G r e e n , Canadian Industrial Organization

and Policy, Second e d i t i o n , ( T o r o n t o : M c G r a w - h i l l R y e r s o n
L i m i t e d , 1985) pp. 22-23; The Financial Post 500 (June
1984), pp. 70,71,74.