Japan’s Industrial Structure: Forced to Change (1973–1982)

Abstract

The rapid growth of the previous decade had enabled the Japanese economy to catch up with the world’s advanced economies and to overcome the constraints imposed by periodic balance-of-payments deficits, a limit that Japanese economists had come to call the “balance-of-payments ceiling.” By 1970, Japan was making a structural shift to heavy and chemical industrialization, establishing a mass consumer society, and becoming a more open economy through trade and capital liberalization. Also becoming apparent, however, were the stresses of such economic growth on Japan, namely, rising prices, the twin problems of depopulation in the countryside and overcrowding in the cities, and pollution. These prompted mounting calls for a reconsideration of Japan’s growth-oriented policies. The year 1970 was noteworthy for Japan internationally and domestically: the 1970 Japan World Exposition (Expo ‘70) in Osaka was the first World Expo to be held in Asia and showcased to the world the fruits of the country’s economic growth; meanwhile, pollution issues dominated proceedings in the Diet, which established the Environment Agency and adopted regulatory measures to address escalating concerns about pollution.

1 The Evolution of Japan’s Trade and Industrial Policy in the 1970s

1.1 Pursuing the Shift to a “Knowledge-Intensive” Industrial Structure

The rapid growth of the previous decade had enabled the Japanese economy to catch up with the world’s advanced economies and to overcome the constraints imposed by periodic balance-of-payments deficits, a limit that Japanese economists had come to call the “balance-of-payments ceiling.” By 1970, Japan was making a structural shift to heavy and chemical industrialization, establishing a mass consumer society, and becoming a more open economy through trade and capital liberalization. Also becoming apparent, however, were the stresses of such economic growth on Japan, namely, rising prices, the twin problems of depopulation in the countryside and overcrowding in the cities, and pollution. These prompted mounting calls for a reconsideration of Japan’s growth-oriented policies. The year 1970 was noteworthy for Japan internationally and domestically: the 1970 Japan World Exposition (Expo ‘70) in Osaka was the first World Expo to be held in Asia and showcased to the world the fruits of the country’s economic growth; meanwhile, pollution issues dominated proceedings in the Diet, which established the Environment Agency and adopted regulatory measures to address escalating concerns about pollution.

In December 1969, MITI established a policy research group on industrial policies for the 1970s chaired by the Director of the Policy Planning Office in the Minister’s Secretariat. The group was composed of four subcommittees, one tasked with considering the overall picture, and the other three focusing on international economic policy, domestic industrial policy, and policy regarding social overhead capital. After more than a half-year of deliberations, the group’s summary report was released on August 4, 1970. The overview begins with the following enumeration of Japan’s principal aims for the 1970s: “To secure for every citizen a life that is truly rich in human spirit, to contribute actively to the peace and development of the international community, and, as the essential foundation for both of these, to maintain and enhance the creativity and vitality of citizens.” Basic trade policy adhered to these aims and was intended to contribute to their achievement with policies for both domestic industrial activities and international undertakings. Domestic industrial policy was tasked with the following:

• a. Consumer life: securing a sufficient quantity of consumer goods and improving their quality, ensuring stability in daily living, enriching leisure time, and other measures.

• b. Work environment: raising income, increasing the number of rewarding jobs, assuring a safe and comfortable working environment, and shortening working hours.

• c. Social and natural environment: preventing environmental destruction, improving social overhead capital, enriching education, and other measures.

Realizing these aims would also require the achievement of certain conditions in the international arena, including the formation of an international division of labor corresponding to advances in the domestic industrial structure and of an international economic environment favorable to the Japanese economy in other ways.

The report also addressed the ongoing problem of the relationship between the government and the private sector and proposed the establishment of a comprehensive system of trade and industrial administration that would respect the independence of the private sector, provide coordination in sectors that could not be expected to work together on their own, and develop the optimum mix of private sector and government leadership.

The 1970 report was an early presentation of the framework introduced more thoroughly in the May 1971 interim report of MITI’s Industrial Structure Council titled Vision of MITI Policy in the 1970s. The interim report cited five major tasks for administration of the industrial economy: (1) cultivating industry’s overall development capacity and the foundations for that development, (2) making qualitative improvements in the standard of living, (3) establishing a positive social and natural environment, (4) expanding the number of rewarding jobs and assuring a comfortable working environment, (5) developing the Japanese economy in cooperation with the international economic community.

The report further submitted that for Japan to achieve these aims, macroeconomic administration in the 1970s would have to shift its basic orientation from high-speed growth to “growth-utilization.” The role and responsibility of industrial policy was to achieve this growth-utilization style of economic management. Because Japan had a market economy, that industrial policy had to be predicated on the maximum utilization of market mechanisms, an issue that required detailed examination. In other words, the industrial economy was facing changing conditions in the 1970s, which resulted in a growing number of sectors that could not achieve the anticipated results by relying on market mechanisms alone. Such sectors included both those in which non-economic social effects were coming under question, including rural depopulation and urban overcrowding, environmental degradation, safety, and job content; and those that might give rise to international issues, requiring policies to minimize trade friction and promote active international cooperation.

With the clarification of these parameters, the goal of trade and industrial policy for the 1970s became the promotion of “knowledge-intensive industries.”¹ Major changes in policy focus were under way, which led in turn to the need to reconsider existing policies on industrial structure and organization. A novel and ambitious approach was accordingly needed even with regard to the promotion of technological development, not only to discover new industries but also to include the perspective of enhancing the welfare of the people. There was, moreover, recognition of the need for external cooperation as well as domestic policies, which required a review of the fundamental approach to foreign investment.

1.2 The Turbulent 1970s: The Nixon Shock and the Oil Crisis

Just three months after the release of the interim report, international currency problems, long a source of concern, erupted, marking the beginning of a decade of turbulence. The international environment was different from anything the Japanese economy had yet faced. US President Richard Nixon adopted a “dollar-defense policy,” meaning the suspension of the gold standard for the US dollar, in response to the economic strains caused by the quagmire in Vietnam. Japan was therefore forced to raise the value of the yen, which had been fixed at 360 yen to the dollar for more than 20 years. Given Japan’s persistent trade surplus, the yen appreciation should not have posed a problem, but both government and business overreacted to the change. Fearful that the yen’s rise would bring about an export slump that would in turn cause a depression, the government sought to buoy the economy with an aggressive fiscal policy driven by deficit bond issues. As a result, the money supply increased rapidly, creating excess liquidity and spurring inflation. Wholesale prices, which had been stable until that time, soared in 1973. Consumer prices, until then growing steadily at somewhat over the 5% level, leapt as well, by 20%.

The first oil crisis, which followed the outbreak of the fourth Middle East war and the “petroleum strategy” adopted by Arab oil-producing countries, cemented the economic changes in Japan. In January 1973, the per-barrel price of oil was US$ 2.6. Based on predictions of a moratorium on supplies if the tensions persisted, it topped 3 dollars in October; after the war began on October 6, it rose to US$ 5.1, and then soared to US$ 11 by January 1974. The rise in prices internationally for agricultural products and raw materials had already been generating concern. Now it escalated all at once to what was dubbed “frenzied prices.” Meanwhile, Japan was experiencing an upsurge in land prices due to the speculative investing sparked by the Kakuei Tanaka administration’s “archipelago remodeling plan,” and wages were up by 20–30% following on the increase in prices. The impact of the oil crisis reached every facet of daily life, setting off panic buying of necessities such as toilet paper and detergent.

1.3 Policies on Industrial Structure in the 1970s

Given this upheaval in the international arena, Japan needed to secure a stable supply of energy, in addition to addressing, as quickly as possible, the recession triggered by the appreciation of the yen. Although the oil crisis had not been anticipated, earlier organizational reforms had established an Agency for Natural Resources and Energy to promote a comprehensive energy policy, and this proved convenient for addressing the immediate disarray. But it was only after the second oil crisis, in the budgets of 1980 and 1981, that energy policy was given the highest priority. In the mid-1970s, the emphasis remained on stabilizing domestic prices and improving consumer life.

So abrupt a change in the economic environment made it difficult for policymakers to prioritize the Vision of the 1970s, but it is clear nevertheless that trade and industry policy was based on the 1970s Vision throughout this time. Issues such as the promotion of industrial technology temporarily took a backseat, but the effort to establish a knowledge-intensive industrial structure continued without interruption.

Reference standards were established to serve as the basis for envisioning a future industrial structure built on knowledge-intensive industries. These reference standards included both those of the high-growth era—income elasticity and productivity growth—and new ones: “standards on overcrowding and the environment” and “standards on the content of labor.” In other words, the Ministry anticipated the social demand for reduced reliance on scarce production factors and energy, and for the realization of safe, comfortable and fulfilling workplaces. The 1970s Vision was notable for its consideration of how to meet the social needs arising in newly emerging sectors.

The following were cited as knowledge-intensive industries that could be expected to deliver particularly high growth in the 1970s:

• (a) R&D-intensive industries (computers, aircraft, electric cars, industrial robots, nuclear power-related industries, integrated circuits, fine chemicals, new synthetic chemicals, new metals, special ceramics, marine development, and others.)

• (b) Advanced assembly industries (telecommunications equipment, office machinery, computer-controlled machine tools, pollution control equipment, home heating and cooling equipment, educational equipment, factory-produced housing, automated warehouses, large construction machinery, high-grade plant engineering, and others.)

• (c) Fashion-related industries (luxury clothing, high-end furniture, residential furniture, electro-acoustic instruments, electronic musical instruments, and others.)

• (d) Information industries (information processing services, information provision services, education-related industries including video industries, software, system engineering, consulting, and others.)

The Vision’s conception of the structural transformation ahead highlighted the machine industries that would grow with heavy industrialization; it also envisioned a shift “from hard to soft,” meaning a shift to industries that would contribute to consumer life and the development of the welfare society.

However, the changes already under way in the industrial structure only accelerated due to the yen’s appreciation and soaring energy prices. In particular, smokestack industries such as petroleum refining, metal smelting, and production of vinyl chloride, other petrochemicals, and chemical fertilizers struggled with the sharp rise in costs, despite repeated efforts at energy conservation.

These basic materials industries faced an array of challenges: high energy costs, the difficulty of differentiating general-purpose products, substantial fixed costs and therefore a heavy burden of interest payments when operating rates decline. They were also at a disadvantage in price negotiations because so many of their consumers were large users, and they were extremely capital-intensive.

As a result, MITI had to adopt measures to address recession in these industries, while their declining position spurred changes in the industrial structure overall.

The shift to a knowledge-intensive industrial structure had originally been projected in the 1970s Vision as the next step for a mature economic power, but the addition of energy conservation to the agenda made the country’s turn away from smokestack industries that much more significant: machine industries began to receive greater emphasis within the industrial structure.

This policy perspective meant that the priority at this time was on adjustments to the domestic economy. International economic friction, although a concern, temporarily took a backseat even as great changes continued to rock the international environment.

This was because the balance-of-payments issue was temporarily obscured, first by the Nixon Shock and yen appreciation, and then because of the surge in crude oil prices, which was directly linked to import increases that masked the large trade surplus. Domestic measures to counter the ill effects of the higher yen were accordingly put in place, as were energy policies. After the first oil crisis, priority was given to policies addressing skyrocketing prices. For the time being, longer-term policies were shelved.

2 The Vision of the 1970s and the Machinery and Information Industries

2.1 Toward a Knowledge-Intensive Industrial Structure and Machinery and Information Industry Policy

2.1.1 The New Machinery and Information Industries Bureau

In the reorganization of July 1973, MITI established the Machinery and Information Industries Bureau. The new Bureau incorporated 10 Divisions previously in the Ministry’s Heavy Industries Bureau: the Industrial Machinery Division, Cast and Wrought Products Division, Electronics Policy Division, Information Processing and Data-Processing Promotion Division, Electronics and Electrical Machinery Division, Automobile Division, Weights and Measures Division, Aircraft and Ordnance Division, Vehicle Division, and Machinery Insurance Division. To these were also added a General Affairs Division and an International Trade Division.

This reorganization was in line with the 1970s Vision’s recommendation of a conversion to a “knowledge-intensive industrial structure.” The Industrial Structure Council Machinery Industry Committee, to recommend concrete measures for the 1970s Vision, released an interim report, 1975–1984 Vision for the Machinery Industry, while the Information Industry Committee issued an interim report in September presenting the basic direction of policy for the machinery and information industry (Hasegawa 2013, p. 19).

The Vision for the Machinery Industry stressed the strategic importance of the industry as one “that is most suitable for our country and that is a frontier industry with the potential to constantly bring forth new industries and products as science and technology advance.” The Vision accordingly called for an active response to the needs of the industry and active development internationally. The specific recommendations included: (1) strongly promoting the development of autonomous technologies through the development of cutting-edge products such as electronic calculators and aircraft, (2) promoting regularization and standardization, securing the supply of raw materials, strengthening the foundations of small and medium-sized machinery producers, promoting engineering and the modernization of distribution, and so on, to make the machine industry stronger and more efficient.

The Information Industry Committee’s interim report showed an awareness that the expansion of information through the use of computer technology would in the long term enable Japan to overcome such constraints as the industrial pollution, environmental destruction, overcrowding, and depopulation that resulted from rapid growth, as well as the resources and energy shortages that emerged in the oil crisis. It pointed out that, in order to prepare the infrastructural foundation for the information-based economy, it would be necessary to establish a smooth system for information dissemination to enable the efficient advance of information processing and to train people for developments in the information field. These approaches would enable the development of the computer industry and of the information management industry, including areas such as software.

2.1.2 From the Electronics and Machinery Industries Law to the Machinery and Information Industries Law

The legal basis for machinery and information-industry policy was the Law on Temporary Measures for the Promotion of Designated Electronics Industries and Designated Machinery Industries enacted in March 1971 and based on the Industry Structure Council’s July 1970 “Report on the future of machinery industry policy: The best path forward for the machinery industry in the 1970s.” Ninety-five machinery models were covered by this law by September 1975, and plans for the advancement of each of these brought about joint ventures, research and development, and systematization.

The necessary capital was provided by the Japan Development Bank and the Smaller Business Finance Corporation within special frameworks and with favorable interest rates. For fiscal years 1971–1977, 48.86 billion yen of the loans went to the machinery industry and 16.555 billion yen to the electronics industry (Table 1). The automotive parts and semiconductor industries were particular priorities.

Table 1 Loan under the Electronics and Machinery Industries Law, FY 1971–1977 (Unit million yen)

At a joint meeting of the Machinery Industry and Information Industry Committees in October 1977, as the Electronics and Machinery Industries Law approached termination, the Industrial Structure Council approved a report titled “The future direction of the machinery and information industries and the formation of machinery and information industry policy.” This report defined the role of the machinery and information industries as follows: (1) to actively respond to new social needs; (2) to respond to employment problems, including providing comfortable employment opportunities; (3) to respond to social demands, such as consumer issues; and (4) to develop harmonious international economic relations (Hasegawa 2013, p. 32).

The first of these covered (1) planning for systems to supply social infrastructure, including medical care, urban development, education, transportation, and information needed in daily life, with the aim of achieving a higher level of social welfare; (2) supplying the new tools required to overcome resource and energy problems, environmental pollution, workplace accidents, and so on; (3) developing new products to advance resource and energy conservation, minimize pollution, and to improve safety in conventional as well as new machinery sectors. Because the machinery and information industries were seen as key to Japan’s ability to respond to a wide range of needs, their development was consistently a central policy aim, leading to the July 1978 Law on Temporary Measures for the Promotion of Designated Machinery and Information Industries (Designated Machinery and Information Industries Law).

The new law, like its predecessor, was temporary legislation. It stipulated a seven-year period of assistance in the form of subsidies and policy-based funding, based on plans for upgrading hardware (equipment to promote testing and research, industrialization, and rationalization) as defined by Cabinet Order. Although the two laws took the same form, the new version established several new directions: first, within the machinery industry, it singled out for promotion those devices that integrated electronics (computers); second, its Cabinet Order designations eliminated the requirement that the target sector “contribute to labor-saving and other business improvement activities” and added instead that it “contribute to rationalization of resource use”; and third, it added the software industry as one of the areas targeted by the new law.

The new Cabinet Order therefore targeted 88 industries, seven fewer than before. The new law placed a greater emphasis on policies that treated the machinery and information industries as a single unit. The two had remained distinct even after the establishment of the Machinery and Information Industries Bureau, but from FY 1979 forward, they began to be conceived of as united. The increased emphasis on the electronics industry (especially semiconductors) is clear in the Designated Machinery and Information Industries Law financing shown in Table 2.

Table 2 Loans under the Designated Machinery and Information Industries Law, FY 1978–1984 (Unit million yen)

2.1.3 Electronics Industry Promotion Measures

One particular issue facing the 1970s information industry was how to respond to trade liberalization. Liberalization of the computer market began in July 1972 and was complete as of April 1976. The main focus of industrial promotion policy thereafter was the development of a 3.5-generation computer that could compete with the IBM (International Business Machines Corporation) 370 series. Based on the Electronics and Machinery Industries Law, a system for directing financial support to the computer industry had been established in 1972, enabling the provision of subsidies for the development of both computers and peripheral equipment (Hasegawa 2013, p. 608).

Three groups of domestic computer manufacturers (Fujitsu and Hitachi; NEC and Toshiba; Mitsubishi Electric Corporation and Oki Electric Industry) received the subsidies for computer development, which covered 50% of their costs. Manufacturers of peripherals also received subsidies for 50% of costs. The 1978 law also clarified that the software industry would be a target for support, and policies for nurturing the computer industry were strengthened through such measures as user taxes.

Even with these measures, however, IBM remained the computer industry leader in the late 1970s. MITI and industry stakeholders were shocked by the information they were getting about the new Future System (FS) model being developed by IBM in 1974. The core technology of FS was the Very Large-Scale Integrated Circuit (VLSI). VLSIs were expected to increase integrated circuit (IC) densities by 100 times or more, bringing computer prices down to one-twentieth their existing level and the unit price of computer processing down to one-third or even one-fifth its level. MITI recognized that it would be difficult for domestic manufacturers to independently develop IBM’s FS and VLSI counterparts because of the enormous expenditure and risks involved, and determined that government subsidies were therefore especially necessary for VLSI development. It also concluded that the domestic development of computers equipped with VLSIs would lower prices and thereby contribute greatly to the advancement of small and medium-sized firms and economic society in general (Fig. 1).

Fig. 1

VLSI research lab achievements and personnel. Soruce [II-7, p. 627]

MITI therefore began to explore ways of supporting the endeavor in 1975 and in March 1976 established the VSLI Technology Research Association to serve as the core mechanism in the development of concrete policy plans (Hasegawa 2013, p. 617). Subsidies covered 50% of the Association’s development expenses, and from FY 1976 to FY 1979 MITI focused the necessary materials and talent as much as possible on the two groups under the Association’s umbrella: Fujitsu–Hitachi–Mitsubishi and NEC–Toshiba.

The VLSI project bore fruit, improving the semiconductor industry’s LSI manufacturing technology and contributing to Japanese firms’ significant rise in the 64K DRAM and 1M DRAM industries. Factors in the success of this effort were the clarity of the goals, the focus on the development of manufacturing technology, the consistency of project organization and personnel with the targets set, and the role played by the external environment in promoting R&D. In a related effort, MITI introduced a five-year subsidy and other measures to promote the development of fourth-generation computer technology based on VLSIs.

2.1.4 Promoting Software Development

The Information-Technology Promotion Agency (IPA), launched in October 1970, played a central role in software promotion (Hasegawa 2013, p. 629). The IPA’s concrete tasks were to outsource the development of particular programs and to create a credit guarantee business. The first involved planning and developing the spread of “programs that particularly need development and the results of which are recognized as having broad applications in business activities.”

For the technical infrastructure involved in program development, MITI advanced a production technology development plan with a total budget of 7.5 billion yen for FY 1976–1981 and outsourced business to the Joint System Development Corp (JSD), a company established in April 1976 with funding from 17 major software companies and 13 banks. This plan had several aims: (1) to resolve the Japan–US software gap, (2) to modernize software production (improve the efficiency of the development task), and (3) to secure the autonomy of the Japanese economy.

The second of these aims was intended to address concerns that the labor-intensive software development industry would face rising costs due to the soaring price of labor. The technical development plan for software production as described above produced programs based on four pillars: the “CPL-A language system,” the “program module/database system,” the “CPL-B language system,” and “peripheral related technology and related tools.” These enabled greater efficiency in software design and manufacture so as to improve the productivity and reliability of software.

2.2 The Machinery Industry as a “Strategic Industry”

2.2.1 Measures on Automobile Pollution and Electric Vehicle Development

While these efforts to build a knowledge-intensive structure were under way, the industrial policy on the auto industry focused on (a) stronger exhaust-gas regulation and the pollution prevention and safety assurances that had suffered from the soaring gasoline prices, and (b) electric car R&D (Hasegawa 2013, p. 315). In a December 1974 report titled “The auto industry in 1985,” the Automobile Industry Subcommittee of the Machinery Industry Committee suggested that measures should be taken to resolve the problem technologically and that plans should be made for expanding demand to a global scale through exports and overseas investment and for forwarding internationalization. While maintaining a strong export orientation, this report also stresses the need for efforts to resolve the pollution issue. These ideas were also presented in a March 1976 subcommittee report, marking a growing emphasis on the need for a prompt response to pollution, safety, and energy issues.

Pollution and safety policy were also important policy issues in promoting the automotive parts industry (Hasegawa 2013, p. 324). A major reason for the enactment of the Electronics and Machinery Industries Law had been the “mounting demand for greater harmony between industrial activities and people's lives in areas such as pollution and safety,” and among the automotive sectors designated under the law were “automobile pollution-related measuring instruments, automobile testing and inspection equipment manufacturing industry” and “the automobile parts manufacturing industry.” These received loans and other policy support based on the associated improvement plans. This area saw no change under the new law. When the Designated Machinery and Information Industries Law came into effect, support for the parts industry—chiefly for improvements in quality and performance and for cost reduction—narrowed its focus more specifically to pollution and safety. This is a good example of the flexibility with which industrial promotion policies could address changing policy objectives to respond to the demands of the times.

The development and diffusion of electric vehicles was promoted beginning in the 1970s as part of broader policies on next-generation automobiles. Since it was not easy to develop electric cars comparable in performance to gasoline-powered cars, policy support was offered through the “Large-Scale Project” framework (Hasegawa 2013, p. 373).² A six-year R&D period from FY 1971 to FY 1976 was set for the electric vehicle development project, with planned costs of 5.7 billion yen, delivery of the first prototype at the end of three years, and trial production of an experimental car in the fifth year. However, because the firms that were to have undertaken the research and development were not strongly convinced of the need to commit manpower and funding to the enterprise, it did not produce the desired results. In the process of identifying project goals, MITI established the Council on Electric Vehicle Diffusion Measures within the Machinery and Information Industries Bureau in October 1975 to consider measures for promoting the diffusion of electric vehicles. The Japan Electric Vehicle Association (EV Association), established in August 1976, was tasked with promoting electric vehicles, and 10 firms together established the Association for Research on Technology for the Standard Electric Automobile in February 1987 with the aim of advancing R&D enough to produce an electric car.

In 1976, MITI also established the Electric Vehicle Association as a private advisory body answering to the Director General of the Machinery and Information Industries Bureau, and put together the Basic Plan for Promotion of the Electric Vehicle (April 1977). Although this plan did produce an experimental electric vehicle comparable in performance to the cars with internal combustion engines, its market was expected to be limited until it could become more cost-effective. Proposed uses for the time being included vehicles for milk and newspaper delivery, which required low-noise emissions, commercial vehicles that traveled only short distances each day, short-route buses and government patrol cars, as well as vehicles used only within confined areas and requiring zero exhaust and low noise.

In addition, the plan set ownership targets for FY 1986 of 200,000 regular vehicles and 50,000 vehicles for use only in confined areas. To realize these targets, the plan urged (1) promoting technological development, (2) making the cars more economical (3) establishing the necessary service systems, (4) improving the social environment, and (5) education and PR activities through the EV Association mentioned above. Things did not proceed entirely smoothly, however, and even the new plan issued in December 1983 after review did not put ownership within range of the targets.

Subsequently, in its October 1991 Electric Vehicle Diffusion Plan, MITI began exploring new approaches to achieving these targets, saying that it “hope[d] to see further efforts by automobile, battery, and electrical manufacturers” and signaling that MITI would entrust the basic direction of development and diffusion to the private sector. An exception was made in the area of batteries, which required enormous outlays of capital. MITI recognized the need for government to bear the risks of development, and did so within the framework of the New Sunshine Project. This plan contributed, through the rapid diffusion of fuel cells, to the spread of a new generation of automobiles powered in part by electrical energy.³

2.2.2 Measures to Promote the Industrial Machinery and Engineering Industries

Promotion policies based on these legal frameworks were advanced in other areas as well, including machine tools, civil engineering and construction machinery, chemical machinery, textile machinery, and agricultural machinery (Hasegawa 2013, p. 197). Under the original law, specialized production systems and advances in systematization were developed to meet the plans for their specific industries, and inter-industry cooperation was promoted as an especially important goal. The revised law also recognized amortization of the “first quarter of the first year” as part of Measures for the Special Amortization of Important Complex Machinery such as high-performance computer-controlled metal-processing machinery, high-performance computer-controlled automatic design devices, and high-performance computer-controlled facsimile storage and exchange devices. This understanding dated back earlier than the 1978 revised law, having originated in the financing mechanism created in 1975 to promote machine systems.

These loans sought to create new high-value-added products (mechanical equipment systems) that could couple computers with other machinery based on mechanical engineering. Various measures for subsidizing the machinery and information systems were adopted with the goal of developing a more sophisticated machine industry.

Despite the emerging trade friction in the latter 1970s, the engineering industry showed little sign of it and was expected to become an important player in machinery exports (Hasegawa 2013, p. 277). In the midst of the first oil crisis, when domestic capital investment was sluggish, projects materializing in oil-producing countries boosted the export of machinery and contributed to the goals of securing resources and energy. MITI considered such exports, including soft services such as product management, as business sectors and made promoting them a pillar of its export promotion policies.

In November 1977, MITI established an engineering roundtable as a private advisory body of the Machinery and Information Industries Bureau Director General. Its interim report of April 1978 called for the development of financial systems and the standardization of both hardware and software in terminology and other areas, to advance the engineering industry. MITI accordingly established the Engineering Advancement Association of Japan in August 1978, through which to develop measures for strengthening technology development and reinforcing the creditworthiness of the industry.

2.2.3 Nurturing and Advancing the Nuclear Power Industry

The nuclear power industry was another knowledge- and R&D-intensive- industry that was expected to grow. It is a high-value-added industry requiring extremely specific built-to-order plants and is also related to a broad array of industrial sectors (Hasegawa 2013, p. 451). The Machinery and Information Industries Bureau stressed the development of nuclear-plant equipment during this period because the exacting safety and reliability requirements in this field meant a need for policies ensuring that due effort was made from the initial stages of production and manufacturing.

The expectation was that after the import of the first nuclear power plants, the second-generation plants would rely on domestic manufacturing. The measures taken to promote domestic production proved effective: by the early 1980s, most of the machinery used in nuclear power plants was produced domestically (Table 3). Even so, the level of technology assimilation at this stage was not regarded as sufficient. As long as nuclear power plants relied on imported technology, there remained the danger that prompt and appropriate technical judgments would not be possible in the event of an atypical occurrence. Because Japan required strict oversight measures, especially of radiation exposure, technical improvements were an important responsibility of policy. This led to plans for improving and standardizing power plants and improving the reliability of nuclear power generation.

Table 3 Domestic production of nuclear power plants

The basic design of nuclear power plants entails the immediate shutdown of the furnace whenever even small problems arise. Any suspension of operations increases the costs associated with temporarily switching to thermal power generation. One hundred fourteen such problems were recorded over the five-year period between FY 1974 and FY 1980. Of these, 40% were due to problems in design oversight, the most common being stress corrosion cracking (SCC) and thermal fatigue. These issues contributed to the recognition of a need for policy measures to address reliability and quality assurance.

In February 1975, MITI established the Committee on the Improvement and Standardization of Nuclear Power Plants and the Committee on Nuclear Power Plant Standardization Surveys within the Machine Information Bureau. Their task was to forward the improvement and standardization of light-water reactors, which were expected to play a central role in nuclear power generation. The results of the committees’ investigations were issued in an interim report in April 1977, which presented the basic concepts that should govern standard specifications: “Plants must be safe, of course, but also improve reliability and capacity utilization, reduce employee exposure to radiation, and implement maintenance and inspection [systems to ensure that] human error would not be a factor.” Standardization of earthquake-resistant design, although also on the agenda, was left for future consideration because of the great variety in local site conditions. On the assumption that steady progress would be made in the improvement and standardization of light-water reactors, the committees continued to build a series of time-based expectations to serve as standard specifications and eventually solidified their thinking on how to achieve a model for light-water reactors that would be suitable for Japan’s specific circumstances.

The “Interim report on light-water reactor improvement and standardization surveys” issued by MITI in May 1978 reported that the first three-year stage of improvement and standardization had been completed in FY 1977, and that great strides had been made both in improving the efficiency of maintenance and inspection, and in reducing employee exposure to radiation. It also defined goals for the second stage, including standardization of earthquake-resistant design and improvement in load-following operating functions, and so on. While efforts continued to improve automation and remote control, therefore, the scope of the standardization efforts also expanded from nuclear-reactor steam-generation equipment to reactor building and other areas. The results of this second stage were compiled in April 1981, and the plan for the third stage was put into effect, to last until FY1985. Under this plan, Japan would rely on international technological cooperation until it could build its own reactors, including the core, as well as related equipment and systems. By the third stage, Japan had made considerable strides toward achieving this goal (Table 4).

Table 4 Improvement and standardization plan targets and results

2.2.4 Promotion of the Aircraft Industry

The challenge for policy on aircraft-industry development in the 1970s was how to develop a new commercial airliner to follow the YS-11, which was seen as “a technical success and a commercial failure.” Among the issues was the question of how to determine the demand target. As presented in the Aircraft Industry Council’s 1972 summary report, the decision was made to collaborate with Boeing Company to develop a 150–200-seat twinjet aircraft (Hasegawa 2013, p. 482).

The Civil Transport Development Corporation (CTDC) was established in March 1973 to pursue this goal based on a combination of private-sector energies and government subsidies. In April 1973, the CTDC entered into a Memorandum of Understanding (MOU) with Boeing, and negotiations between the two continued thereafter.

However, the spending cuts and changes in demand caused by the first oil crisis in the fall of 1973 led to a reconsideration of the YX development plan itself. The MOU contract was such that instead of following a joint development model, Japan would participate in the developmental stages of Boeing’s process. Based on these new negotiations, CTDC and Boeing signed the YX/767 basic business agreement in September 1978, and full-scale development was under way. The US Federal Aviation Administration (FAA) gave its approval to the prototype in July 1982, and the development of the YX/767 concluded as planned.

Meanwhile, the Machinery and Information Industries Bureau began to define the next policy issues in aircraft-industry development. This was based on the thinking that next-generation development should always be in the works even before the completion of the current model in order to ensure the industry’s sound development. According to MITI’s explanation at the Aircraft Industrial Council meeting in April 1977, the 1980s forecast was for a market consisting of “Jumbo’s, Airbus aircraft, new 200-seat aircraft, smaller new aircraft and to a certain extent the continued use of existing aircraft,” which set the parameters for the central challenges of the next phase of policy. In April 1979, MITI asked the Aircraft and Machinery Industry Council Committee on the Aircraft Industry for its opinion on the desired features of a next-generation civilian aircraft dubbed “YXX.”

The Committee’s August interim report proposed aiming for medium-sized aircraft of 100 to 150 seats. The Council continued to establish basic policies for this goal, but meanwhile the CTDC, too, launched preparations for the YXX in June 1981. In March 1984, the CTDC (renamed the Japan Aircraft Development Corporation or JADC in December 1982), together with Mitsubishi Heavy Industries, Ltd., Kawasaki Heavy Industries, Ltd., and Fuji Heavy Industries Ltd., announced the exchange of a first-stage MOU on the 7J7 development plan proposed by Boeing, which would be their official co-developer. In March 1986 they entered into a second MOU.

Policy support also went to the development of engines for use in commercial aircraft (Hasegawa 2013, p. 511). The new effort began with the FJR10 jet engine development project, which from 1971 to 1981 was counted among the Industrial Science and Technology Agency’s Large-Scale Projects. The first period, ending in 1976, saw an investment of 6.8 billion yen in this area; an additional 1.3 billion yen was budgeted for the second period, ending in 1981. Development progressed accordingly.

Among the commercial aircraft engines slated to be put to practical use was the XJB project (RJ500 development) that was launched after the conclusion of a Japan–UK joint enterprise agreement based on consultation with British aircraft-engine maker Rolls-Royce Limited in December 1979. The “Outline of the commercial aircraft jet engine development subsidy” was settled on in November 1980, and the government offered support in the form of subsidies. This project was carried on by an international joint development enterprise comprising five countries and seven companies doing joint R&D on the basis of a March 1983 contract and led to the development of the V2500 engine.

3 Industrial Relocation and Pollution Regulation

3.1 Promoting Industrial Relocation Plans

3.1.1 Industrial Relocation Promotion Measures and Regional Recovery

With rapid economic growth came the twin problems of overpopulation in cities and depopulation in the provinces. In response to these challenges, MITI implemented the Industrial Relocation Promotion Law and the Law of Public Corporations for Industrial Location and Coal Mining Region Development (Takeda 2011, p. 11) in October 1972.

Records from 1972 show fully 72% of the country’s industry concentrated in the Pacific Coastal belt, which constituted no more than 20% of Japan’s total land area. The need for a reconfiguration of land use was obvious. Regions needing relocation—either inbound or outbound—were designated on the basis of this law in FY 1972, but formulation of a concrete plan proved difficult.

A draft proposal was compiled in December 1975, and in July 1977 the Inducements for Industrial Relocation were determined. The reason for the difficulty was that the Federation of Economic Organizations (Keidanren), along with key industries such as steel, oil refining and petrochemicals, opposed the relocation measures. Relocation ultimately was implemented through administrative guidance, which took their opinions into account.

The July 1977 plan set numerical targets for each of the outbound and inbound relocation areas. Beginning in FY 1978, areas that were regarded as especially in need of industry were designated “Special Induction Areas,” including remote prefectures and those that had experienced structural decline (textile-producing regions, and coal and other mining regions). Aggressive efforts were made to disperse industry within these Special Induction Areas through higher subsidy levels and other measures.

Tax and financial incentives were offered to promote relocation. In addition, support was also offered to fund interest payments for local government bond issues and loans for creating local industrial complexes, subsidies to municipalities and companies for industrial relocation promotion, and for special corporate and third-sector policy financial institutions (Table 5).

Table 5 Long-term trends in industry site location (%)

Because of changes taking place in the industrial structure during the implementation period, this plan did not produce the target results. Although industry in the 1980s left the designated “outbound” areas, they did not necessarily relocate to the target “induction areas” but instead moved into undesignated areas. The industrial base in outlying areas therefore remained weak and did not show much improvement. The Industrial Relocation Promotion Law was abolished in 2006.

Other efforts were made to promote regional development, including the creation of regional Visions and the introduction of industry into agricultural regions. In contrast to the relocation plan’s general focus on urban functions and the over-concentration of industry in Tokyo, these policies were principally concerned with correcting disparities among regions.

The first Vision for the agricultural regions was presented in The Long-term Vision on Industrial Structure, adopted in September 1974 by the Industrial Structure Council for implementation in FY 1976. It declared the need to envision the contours of a future industrial structure specific to each region. This approach sought to correct disparities not only in income, but also in the availability of appealing workplaces, of the types of services found in urban areas, and of connections with nature. In other words, it was concerned with enriching people’s overall living circumstances.

3.1.2 Adjustments to Industrial Locations and the Establishment of Infrastructure for an Industrial Environment

The “Outline on industrial bills,” compiled at the direction of MITI Minister Kakuei Tanaka in July 1972, proved an opportunity to create a legal framework for ensuring environmental preservation in cases of industrial relocation. The Law on Industrial Location Surveys and Related Matters was revised and a new Factory Location Act adopted in February 1974, leading to the establishment of regulations on location (Takeda 2011, p. 155). The regulations were made in response to a recognition that the worsening pollution in existing industrial districts and the progress of industrialization and urbanization overall were damaging the balance with nature. The rules on environmental preservation announced by the MITI Minister stipulated that (1) production facilities could occupy only up to a certain ratio of the site area, and that (2) notification reports had to be submitted for certain specified factories.

MITI also carried out the Comprehensive Survey of Large-Scale Industrial Sites and studies of the FY 1973–1981 expenses for coordinating all-round land development. These were intended to help determine the optimal siting of industrial facilities. It also developed measures to improve the factory environment, including notification reviews for specified plants, subsidies for the promotion of environmental improvements in industrial parks, and surveys on improving the factory environment.

3.1.3 Securing Industrial Water

Measures governing industrial water had been implemented under the 1956 Industrial Water Law to prevent the ground subsidence caused by excessive pumping of groundwater for industrial use. Regulations based on regional designations for the installation of industrial wells were implemented to address the expansion in target areas and the need for shifts in water sources.

These measures were consistent with the strengthening of the regulations required by the interim report of the Industrial Structure Council’s Committee on Industrial Water Policy, summarized in “The basic direction of groundwater measures” of November 1975. The law was not revised, but the measures were pursued in the form of administrative guidance (Takeda 2011, p. 172).

In addition, the Industrial Structure Council once again took into consideration measures to secure industrial water in the mid- to long-term through the compilation of the June 1978 Plan for the Long-Term Supply and Demand of Industrial Water and the August 1985 Interim Report on the Industrial Water Basic Policy Committee. This led to efforts to promote the construction of industrial water supplies, the development of water resources, rationalization of use, and other measures. Large subsidies for construction of an industrial water supply did not prove necessary, because the relocation process stalled. Measures were instead adopted to respond promptly to changes in the industrial structure: the Subsidy Framework for Small-Scale Industrial Water Supply Expenses, for example, was established in FY 1985 to promote the construction of small-scale inland industrial water supplies to serve locations with enterprises in advanced technologies, such as the IC industry.

Meanwhile, in the interest of rationalizing industrial water use, MITI conducted “surveys of water consumption, by type, and surveys of the rationalization of water use, by region.” Research was also conducted on sewage recycling as a possibility for the future. The R&D of comprehensive water recycling systems launched in 1985 (Aqua-Renaissance ‘90 Project) was one such example. As a result of these efforts, the FY 1999 surveys issued by the Environmental Protection and Industrial Location Bureau’s Industrial Facilities Division showed clear improvements in industrial water recovery rates and in water consumption (Table 6).

Table 6 Industrial water demand and unit consumption

3.2 Strengthening the Regulation of Pollution

3.2.1 Direct Regulation of Pollution: Air Pollution

The year 1970 saw the revision of the Basic Law for Environmental Pollution Control by the “Pollution Session of the Diet” and the enactment of many regulations. In 1971, the Environment Agency was established. Looking at subsequent environmental policy from MITI’s point of view, environmental regulations appear to have been implemented to harmonize with economic development.

Direct regulation of environmental pollution centered on air and water pollution while also addressing pollution in the form of noise, vibration, and offensive odors. The regulation of nitrogen oxides (NO_x) was particularly important in the 1970s because the increase in photochemical smog had emerged as a serious issue. The environmental quality standards enacted under Article 9 of the Basic Pollution Countermeasures Law therefore included sulfur dioxide, carbon monoxide, and suspended particulate matter, as they had before, and in 1973 added nitrogen dioxide and photochemical oxidants. MITI meanwhile strengthened its regulations, for example extending the application of the K-Value Regulations nationwide on the basis of the Air Pollution Control Law (Takeda 2011, p. 225).

Sulfur oxide (SOx) is generated when the sulfur contained in fossil fuels such as petroleum is burned. Sulfur oxide contamination thus became a serious problem with the rapid increase in petroleum-based fuel consumption. The government sought to counter this trend by expanding the area subject to regulation and strengthening the standards in March 1974 and introducing the Total Pollutant Load Control approach in June (Takeda 2011, p. 229). Based on this action, prefectural governments established regulatory standards on totals and were enabled to ask factories and workplaces to comply with fuel usage standards. As shown in Fig. 2, these measures produced such great improvements that by the early 1980s, sulfur oxide was evaluated as hardly a problem any longer.

Fig. 2

Sources Environment Agency, Kankyo hakusho [Environment White Paper]. Study Group on Constant Atmospheric Monitoring (ed) Taiki osen jōkyō [Japan’s Pollution Conditions].

Changes in air pollution substance concentrations (Takeda 2011, p. 219).

Meanwhile, the first controls on nitrogen oxide emissions were implemented in August 1973 in accordance with the environmental standards set by the Environment Agency in March 1973. With developments in preventive technologies thereafter, a second and third set of emissions regulations were established in October 1975 and June 1977, expanding the facilities subject to regulation and revising the emission standards themselves. Uniform nationwide regulation went into effect with the fourth set of emission regulations in August 1979 (Takeda 2011, p. 232).

The validity of the environmental standards was questioned with the regulations on nitrogen oxides. The April 1973 report of the Central Council for Environmental Pollution Control, which formed the basis for formulating the standards, was criticized by industry and other sectors for (1) the insufficiency of epidemiological surveys, (2) the underdevelopment of control technologies, and (3) the strictness of the regulations compared with those in other parts of the world. In other words, the stringency of the regulations was called into question from the point of view both of science and of the aptness of the standards themselves. The Industrial Structure Council stated in its December 1977 report that “targets that could not be achieved had been set without any basis” and that “environmental standards should be set to levels that can be realized, not to some ideal value.” The Environment Agency reviewed the standards based on the Council Procedure Report and relaxed them in July 1977 in consideration of the request made by Keidanren (Japan Business Federation).

While revising the standards in the immediate term, the Environment Agency also made it known that the new environmental standards would be achieved in 1985 based on the introduction of controls on total volume. This drew opposition from business circles, but controls on total volume were introduced to the Special Tokyo Metropolitan Zone and other areas including the cities of Yokohama and Osaka in June 1981. Reducing auto emissions was difficult because automobiles were so necessary to mobility, so MITI put its effort into developing regulations on other areas in order to achieve the total volumes stipulated in the new controls. Its 1979 regulations applied to trucks and buses, the 1981 regulations targeted light- and medium-weight gas-powered vehicles, and the 1982 regulations established limits on heavy automobiles using gasoline and diesel. Even with such measures, however, regulation of nitrogen dioxide proved limited in effect. Average concentrations, which had remained largely unchanged after 1973, began to worsen after 1986. Results fell short of the standards, particularly with regard to auto exhaust gases.

3.2.2 Direct Regulation of Pollution: Water Pollution

With regard to water pollution, environmental quality standards and effluent standards were adopted under Article 9 of the Basic Law for Environmental Pollution Control. Environmental standards set the criteria that were to be achieved and maintained for the protection of human health and those for the preservation of the living environment. The regulations based on the Water Pollution Control Law set nationwide uniform criteria for wastewater discharged from certain factories, and recognized the more stringent standards set by prefectures. By FY 1975, all prefectures had added their own standards (Takeda 2011, p. 259).

With these regulations, about 70% of Japan’s water districts improved or maintained their existing levels of water quality from the late 1970s forward. Pollution worsened in some closed water bodies, however, raising the question of whether total volume controls would also be necessary to prevent further deterioration. Some prefectures had already implemented total volume controls after 1973, based on the conclusion that regulations of wastewater concentration did not readily stop pollution. The Central Council for Environmental Pollution Control’s 1977 report, “The total-volume control system in water quality,” approved this approach.

Because these measures applied exclusively to factories and business sites, MITI argued that the Environment Agency should consider regulating domestic wastewater as well, rather than imposing the burden only on industry and business. The 1981 proposal by the Central Council for Environmental Pollution Control that a permit system be established regarding company site locations drew particular opposition. MITI sought to ensure that the regulatory measures not be too restrictive of the business activities of small and medium-sized enterprises, and after difficult negotiations with the Environment Agency, a regulatory framework was put into place.

MITI also undertook to raise awareness in order to promote corporate efforts to address pollution problems, and put effort into the development of anti-pollution technologies (Takeda 2011, p. 293). In 1973, the research institutes of the Agency of Industrial Science and Technology undertook R&D on automobile emissions and NOx air-pollution prevention technologies, and the following year began researching technologies related to the prevention of water pollution as well. At the same time, industry, academia, and government joined in the research and development of electric cars and other projects through MITI’s National Research and Development Program (“Large-Scale Projects”). MITI also promoted pollution prevention by offering subsidies for the development of pollution-control technologies through the Important Technology R&D Subsidy System, instruction on the formulation of pollution-control plans, and national examinations for pollution-control specialists.

3.2.3 Waste Disposal Law and Waste Management Policy

The Waste Disposal and Public Cleansing Law (“Waste Disposal Law”) was enacted in 1970 to address the serious environmental pollution caused by waste disposal and the diffusion of harmful substances. The law distinguished between industrial and non-industrial waste, assigned responsibility for the former to the operator and established disposal systems, and for the latter assigned responsibility for disposal to the municipality. MITI thereby became responsible for providing guidance on industrial-waste disposal and for promoting measures to recycle waste from controlled substances (Takeda 2011, p. 395). Its concrete measures included preparing industrial waste-disposal instruction manuals and establishing the Clean Japan Center (CJC) Foundation in 1975 to develop a national campaign promoting resource conservation and recycling.

The new pollution problem of hexavalent chromium ore (Chromium (VI) Compound Slag) landfill disposal emerged in August 1975, generating strong public concern, as did illegal dumping. In response, the Waste Disposal Law was amended in June 1976, and regulatory measures were added to ensure the operator’s liability, but awareness among businesses remained inadequate. MITI began to consider establishing the tentatively named Recycling Promotion Act to (1) develop a recycling system, (2) actively involve the government in the development of recycling technology, and (3) train and support business operators in recycling. The plan was not soon put into effect, however.

Meanwhile, because municipal processing systems were not keeping up with the increase and diversity of general waste, the idea arose of ​​placing the waste-collection burden on businesses. Beginning in 1973, MITI began reviewing this issue in its Waste Recycling Committee and discussed the Polluter-Pays-Principle (PPP) wherein the operators internalize the cost of disposal by including it in the product’s price. The committee did not succeed in solving the problem of how the cost burden should be structured. The Waste Recycling Subcommittee of the Industrial Structure Council’s Pollution Committee issued an interim report in March 1977 that called for the formation of a resource-conserving industrial structure centered on recycling and emphasized the need for legislative and policy measures to do so. Meanwhile, the concern that PPP systems would become mandatory led to the voluntary promotion of waste-reduction and reuse by industry. As of 1983, about 58% of the 220 million tons of industrial waste generated was recycled, which, compared with the recycling rate of 16% in 1975, represented significant progress. Nevertheless, as the problem of illegal dumping became more apparent, MITI began to offer technical support for the voluntary initiatives of business operators and to promote their awareness through educational activities.

3.2.4 Measures to Address Paper Waste

Measures for dealing with waste paper were regarded as significant means of reducing the burden it imposed on the environment and of securing raw materials (Matsushima 2012, p. 172). Securing raw materials, energy conservation, waste reduction, and protection of forest resources were among the reasons given in the 1981 Vision for the emphasis on this area.

Based on the “Measures to promote the recycling and reuse of paper products,” which was presented in October 1973 by the Consumer Goods Industries Bureau’s Paper, Pulp and Printing Industry Division, concrete policies included the pursuit of legislative measures as well as the establishment of public- and private-sector organizations to undertake promotion campaigns. Legislative measures were not adopted, but the Waste Paper Recycling Promotion Center was established in March 1974 with responsibility principally for (1) public relations and advertising businesses, (2) debt guarantee businesses, and (3) warehousing businesses and the like. The second of these was adopted because of the tiny scale of the recyclers involved, and in 1975, the used paper wholesale business became a designated industry under the Small and Medium Enterprise Modernization Promotion Law (established March 1963). Plans for its modernization were concluded in 1977, principally in order to promote the development of waste-paper standards, sorting containers, and the like. The industry was again given special designation under the same law in 1989 and surveys were conducted on conditions in the industry.

3.3 Environmental Impact Assessment Legislation

3.3.1 Expanding the Preliminary Surveys on Industrial Pollution

A Cabinet Understanding was approved in June 1972 to “pursue environmental assessments in order to promote environmental conservation in public works projects,” and from that point forward, environmental assessments were to be carried out based on specific laws and administrative operations. MITI was involved first in the Comprehensive Preliminary Survey on Industrial Pollution where it concerned large-scale industrial development as part of the Factory Location Law, and second in the July 1977 assessments on power development based on the decision of the MITI Departmental Council (Takeda 2011, p. 323).

In areas pertaining to the Factory Location Law, MITI had since 1965 been providing administrative guidance and instruction to companies based on its forecasts of future pollution, in the awareness that to forward the establishment of non-polluting factory sites, surveys had to be conducted before site selection, and the necessary anti-pollution measures taken. This “Preliminary survey on industrial pollution” was an attempt to instruct companies and local public entities on planning the new construction and expansion of factories based on field surveys and on predictions of contamination drawn from both theory and experimentation.

The Law on Industrial Location Surveys and Related Matters was revised in October 1973, reaffirming the role of these preliminary surveys in locating factories with an eye to pollution prevention and strengthening the surveys both in content and systemically. Where pollution prevention was deemed necessary based on these surveys, the MITI Minister was empowered to designate certain districts, with due consideration of the opinions of the Industrial Location Water Council, to require local companies to submit pollution prevention reports and to make recommendations and issue orders as needed.

This use of the surveys required that forecasting accuracy be improved. MITI pursued the development of computerized simulations. In 1969 it began developing improved forecasting approaches to air pollution and in FY 1970 began doing the same with water quality. The 1970s also saw the development of methods to predict the impact of various contaminants, and these were absorbed into the preliminary surveys. In FY 1985, MITI began developing methods to formulate long-term air-management plans (LAMP) to make regional industrial development plans consistent with the preservation of the atmospheric environment. With “high-technology pollution” emerging as a new problem in the 1980s, MITI in FY 1986 created a database of hazardous substances data and usage manuals and decided to revise its environmental regulations according to need. The Law Concerning the Examination and Regulation of Manufacture, etc. of Chemical Substances (“Chemical Substances Control Law”) was also revised in 1986 to promote further measures ensuring the safety of chemical substances. Investigations of the environmental impact of high-tech industries continued thereafter.

3.3.2 Power Supply Sites and the Implementation of the Assessments

The Cabinet Understanding, “Concerning environmental conservation measures related to public works projects,” was approved in June 1972. MITI did not have jurisdiction over public works but it nevertheless decided to conduct Environmental Impact Assessments on new power-plant construction in the Power Supply Development Plan. The assumption was that these were large-scale developments that would have a significant impact. In July 1977 a MITI Departmental Council Decision was issued on “strengthening environmental impact surveys and environmental reviews of company locations,” and in 1979 MITI solidified its plans for surveys and inspections and began carrying out administrative guidance. MITI would carry out environmental inspections after obtaining environmental impact reports from the power suppliers, and then would inform the public about the reports and seek the opinions of local residents, which were to be reflected in the measures ultimately adopted (Fig. 3. See Takeda 2011, p. 337).

Fig. 3

Outline of the environmental inspection process for power-supply sites (Takeda 2011, p. 344)

The power industry took a cautious stance on the environmental assessment legislation that would establish uniform rules but actively cooperated with MITI’s own assessments. In July 1979, however, the Special Committee on Environmental Problems of the Federation of Electric Power Companies raised two issues. First, local residents were concerned that acceptance of the environmental impact survey would inevitably mean approval of the power plant’s construction, and this had made it impossible to conduct the surveys themselves; furthermore, certain groups of people had thereby been given a platform for insisting on a zero-impact plan. Second, there was concern that unlimited liability could be imposed on business operators despite the limitations of the forecasting methods. These concerns were consistent with the views that shaped MITI’s cautious stance on the enactment of the environmental assessment legislation.

Some years later, in 1997, the Electric Power Supply and Demand Subcommittee of the Electricity Utility Industry Council compiled a report on the environmental impact assessments for power-plant construction. It explained that whereas the public works environmental assessment system required operators to create assessment reports while hearing the opinions of the relevant prefectural governors, power-plant assessments were handled differently. MITI undertook its inspections by utilizing the know-how of administrative inspectors and taking into account the expert opinion of the Environment Inspection Board and completed the inspection after comprehensive surveys had been conducted by the Environment Agency and the relevant prefectural governors in the Electric Power Development Coordination Council. The report pointed out that these inspections prioritized the regulatory system of the Electricity Utility Industry Law and that many exceptions were made to related laws and regulations, but judged the environmental assessments to have been appropriate, given the environmental conservation aim. The report gave particular praise to the fact that the power-plant assessment surveys were more extensive than those based on Cabinet decisions, and that the array of items subjected to predictive evaluation was broader than those of other countries. This latter fact was singled out as being particularly excellent. The power-plant assessments were reorganized so as to be included under the Environmental Impact Assessment Law.

3.3.3 Problems Concerning Environmental Assessment Legislation

Meanwhile, the December 1972 interim report of the Central Council for Environmental Pollution Control strongly urged the establishment of environmental assessments and the improvement of the assessment implementation system (Takeda 2011, p. 351). This gave rise to complications between the movement to legislate the assessments and the opposition to that legislation, which remained a political issue for a long time.

Industry was wary for several reasons. First, they feared that power-plant operators would be vulnerable to subjective judgments if the only matters mandated by law were the procedures themselves, and neither the items for evaluation nor the predictive methods had yet been established. Second, they were concerned that seeking and reflecting the opinions of local residents would unduly delay the development of the plants. Third, they argued that environmental impact assessments should be based on comprehensive evaluations of both economic and social impacts, including the effective utilization of land and improvements in public well-being.

In February 1975, MITI summarized the opposition to the Environment Agency’s Environmental Impact Assessment Bill as follows: first, the environmental assessment items, forecasting methods, evaluation criteria, and other points in the draft bill were seen as extremely unclear, raising the concern that the burden on business could expand limitlessly based on local residents’ demands; second, if the procedures for local residents’ participation in siting public works and factories were regulated, that could mean that even a mere procedural error could subject the factory location plan to litigation. While submitting these objections, MITI meanwhile proposed at a May 1975 meeting of the Factory Location and Industrial Water Council that assessments be carried out based on the Factory Location Law. This proposal placed strong restrictions on participation by citizens. The two ministries’ drafts of environmental legislation thus differed significantly on this issue.

In other words, following the Cabinet Agreement of 1972, Environmental Impact Assessments were carried out through ministerial administrative procedures, but there were no clear criteria stating which actions and what stages required assessments, and in particular, no procedures were in place for seeking opinions from local residents. Citizen participation was envisioned as a central element of the system, based on the judgment that systems were needed both for the plant operators to conduct self-assessments of the environmental impact and for citizen opinion to be heard.

Efforts were therefore made to establish a direction for the legislation, centered on the Environment Agency. A liaison council was established in 1976 composed of bureau directors from the Environment and National Land Agencies, MITI, and the Ministries of Agriculture and Forestry, Transport, Construction, and Home Affairs, but coordination among them proved difficult. In 1978, the effort to coordinate the various points of view was shifted to the Liberal Democratic Party (LDP), but submission of the bill was still considered premature in April.

The report submitted by the Central Council for Pollution Control in April 1979 said that the system of environmental impact assessments based on ministry and agency administrative guidance and regulations was generating needless confusion, that the variations in procedure were causing a lack of clarity, and that uniform rules were essential. The report therefore called for prompt legislation. The content of the suggested legislation, as compared with the Environment Agency’s existing drafts, reflected the consultations that had taken place among the various government offices. Prime Minister Masayoshi Ohira showed strong motivation to enact legislation as suggested in this report. The draft bill of late April 1981 did not include power plants. This was a political decision, based on the opposition of the business world and of MITI to including them in the location assessment targets. However, the bill met with opposition from within the LDP and the exemptions drew the objections of the opposition parties, leading the bill to be scrapped in 1983 without deliberations. Although local governments requested legislation and the government considered resubmitting the bill in 1984, the LDP decided not to submit it for deliberations due to business concerns that lawsuits would multiply. Legislating environmental assessments remained a challenge.

The Environment Agency therefore called for administrative measures that would be based on the main points in the bill. A Cabinet Decision was taken on Implementation of Environmental Impact Assessments in August 1984, and the Environment Impact Assessment Outline was thereupon put in place (see Fig. 4).

Fig. 4

Source Environmental Protection and Industrial Location Bureau/Agency of Natural Resources and Energy, On the proposed bill to revise a section of the Environmental Impact Assessment Law and Electricity Utility Industry Law, March 19, 1997

Environmental Impact Assessment Law procedures and power-plant assessment procedures (Takeda 2011, p. 389).

In outline, the plants subject to assessment would be those that were either operated or licensed by the national government, that were large in scale, and that had a significant environmental impact, and the operators would create environmental impact statements, taking into account the opinions of the residents and the applicable governor and mayors.

Business operators were not subject to any binding authority, however, so it was expected that they would try to influence the views of residents and others. After nine years of expending enormous energy trying to produce a bill, the end result was that environmental assessments were handled administratively, based on a Cabinet Decision. MITI remained cautious about legislation and ultimately its thinking prevailed.

3.4 Strengthening Policies on Industrial Safety

3.4.1 Promotion of Security Measures for High-Pressure Gas

In the early 1970s, owing to advances in the petrochemical industry, the rules of the existing High-Pressure Gas Control Law were no longer compatible with actual conditions (Takeda 2011, p. 539). Huge plants were being constructed, and liquefied petroleum gas (LPG) was being consumed in homes. Most significantly, the petroleum industry had frequent accidents, notably one in 1973 at the Idemitsu Co., Tokuyama plant; comprehensive safety inspections were thereupon carried out at 16 facilities. Meanwhile, the High-Pressure Gas and Explosives Safety Council issued a report, “Regarding the high-pressure gas security system of the future” (July 1974), which presented plans for changing the existing safety system based on self-monitoring by operators, and the High-Pressure Gas Control Law was revised in May 1975. The revisions included the following: (1) strengthening the organizations responsible for safety management, (2) strengthening hazard prevention regulations and safety education plans, (3) regulations on specific equipment, (4) regulations on LP gas containers, etc., (5) strengthening the high-pressure gas safety insurance organizations, (6) strengthening regulations on production notification systems, and (7) amending the scale of fees and fines. The fifth of these was intended to strengthen the public character of the organization through government investment in the High-Pressure Gas Safety Institute that had been established in 1963. As for the security provisions mandated by the revised law, policy-based loans were made to business operators. Additionally, the Law on the Prevention of Disasters in Petroleum Industrial Complexes and Other Petroleum Facilities was enacted in December 1975 and MITI undertook a two-year process, beginning in 1977, to create a plan for earthquake-resistant design standards for petroleum complexes.

During this same period the Law Concerning the Securing of Safety and the Optimization of Transaction of Liquefied Petroleum Gas was revised, based on the August 1977 report by the High-Pressure Gas and Explosives Safety Council, and the regulations concerning LP gas sales companies and equipment contractors were strengthened. In addition, the Law Concerning the Supervision of Specific Gas Consumption Equipment, enacted in May 1979, required installers of gas equipment to be certified, while MITI, too, began emphasizing measures to prevent gas leaks, and launched a leasing system for alarm machines in May 1977 as well as setting technical standards for the alarms.

3.4.2 Measures to Prevent Mining Pollution

The urgent problem of pollution from metal mines involved not only operating mines but also mines that had been abandoned. Therefore, in addition to the mine pollution prevention measures based on the Mine Safety Law, the Law on Special Measures for Mine Pollution Caused by the Metal Mining Industry went into effect in July 1972. Based on this measure, the MITI Minister formulated basic policies for mine pollution prevention while the holders of mining rights and mining leaseholders formulated their own such plans, and the Metal Mining Agency of Japan (MMAJ) was to accumulate a funding reserve in order to cover the cost of operations to prevent pollution from abandoned mines (Takeda 2011, p. 617).

Meanwhile in 1970, the Mine Safety and Inspection Bureau (Department) had begun conducting a series of surveys of the abandoned heavy-metal mines that seemed in the most urgent condition. MITI took the survey results seriously and decided to establish a subsidy system in 1971 to assist with the costs of construction to prevent pollution at abandoned mines and also subsidized a portion of the costs of such construction at mines run by local public entities. In addition, the July report on the June 1974 inquiries to the Mining Industry Council titled “Policies on accumulated pollution from metal and other mines” said that the existing policies on “accumulated mining pollution” were inadequate and recommended the following concrete measures: (1) the national government should cooperate with local public bodies in cases where no one is responsible for eradicating the pollution, as, for example, at abandoned mines; (2) the financial burden of local public bodies should be greatly reduced; (3) where operators were unable to bear the costs, the national government should take that into account. In response, MITI expanded the mine pollution-control subsidy system for abandoned mines in FY 1973.

In FY 1975, MITI began implementing measures to reinforce metal mining, through guidance and support of design and management, either where the mines in question were large in scale and run by local public bodies, or where the construction required for pollution-prevention was on a very large scale or was technically problematic.

The August 1952 Extraordinary Law on Coal Mine Pollution Recovery and the June 1963 Law on Extraordinary Measures on Compensation Collateral for Coal-Mining Pollution (renamed in May 1968 as the Law on Extraordinary Measures for Compensation, etc., for Coal Mine Pollution) became the legal framework governing pollution policies pertaining to coal mining and was extended several times for 10-year periods. The reason for the extension was the difficulty in completing the process within the time stipulated by the long-term plan. Through its national surveys of the volume of mining damage, conducted over a two-year period beginning in July 1979, MITI ascertained that the mining damage was equivalent to the total mining damage in 1972, and it therefore extended the measures to facilitate pollution abatement. Based on the Coal Mining Council’s February 1971 report, MITI aggressively pursued the early and final resolution of the cumulative mining damage. On the premise that rationalization and improvement in administrative and financial efficiency would be taken into account, MITI would undertake to implement the measures systematically and efficiently.

4 The Challenge of Stable Energy Supplies and the Development of Industrial Technology

4.1 The Two Basic Laws on Oil

4.1.1 Responding to the Oil Crisis

Prices of crude oil (Arabian Light) more than tripled in less than half a year in the first oil crisis that began in October 1973. This also triggered the transfer of the right to determine crude oil prices from the European and American oil majors to the oil-producing countries. Following the second oil crisis of January 1978, crude oil prices doubled between 1979 and 1981 due to price increases by the Organization of the Petroleum Exporting Countries (OPEC).

These crises made the stable supply and volume of energy a top priority and spurred interest in energy conservation measures and policies for introducing alternatives to petroleum. In the medium term, crude oil prices fell after OPEC lowered the official price by five dollars per barrel in 1983. The soaring price of crude oil had led non-OPEC countries to increase their production of oil, and Saudi Arabia abandoned its role as swing producer (adjusting production) in July 1985. In that sense, the policy question of how to address the crisis was temporary.

Nevertheless, the comprehensive energy policy system that had been developed to decrease Japan’s dependence on oil exerted a significant influence on public policy. The policy had three pillars: (1) securing a stable supply of oil, (2) promoting the development and introduction of petroleum energy alternatives, and (3) promoting energy conservation. This represented a shift from the rapid-growth era’s pursuit of “abundant, inexpensive, and stable” supplies to “securing a stable supply as the priority policy issue.”

In other words, “energy security” (ensuring the stable supply of energy) became one of the so-called 3 E’s of energy policy, along with “environment” (adapting it to the environment) and “economy” (utilizing the market principle). This remained the case into the twenty-first century.⁴

As mentioned earlier, the Natural Resources and Energy Agency, established as a MITI affiliate in the July 1973 organizational reform, played the role of promoting a unified energy policy. The organizational reform had been based on the Industrial Structure Council interim report, which had laid out the need for a comprehensive and integrated approach to (1) the expansion of the economy and concomitant increase in demand for energy resources; (2) the changing conditions of resource and energy supplies; and (3) the establishment of comprehensive natural resources and energy policies (Kikkawa 2011, p. 41).

4.1.2 The Two Basic Laws on Oil

The Kakuei Tanaka Cabinet, which decided on the Guidelines for Emergency Measures for Oil at the November 6, 1973 Cabinet meeting, called for conserving consumption. At the same time, it took up urgent legislation to prevent unfair profiteering and the spread of inflation due to piggybacking price hikes, and established the Petroleum Supply and Demand Optimization Law and Act on Emergency Measures for Stabilizing Living Conditions of the Public (the so-called Two Basic Laws on Oil) (Kikkawa 2011, p. 120).

The Law on Optimizing Oil Supply and Demand stated (1) that the Prime Minister, following on a decision by the Cabinet, would implement measures to deal with the shortage of oil supplies, and (2) that MITI, following on the said Cabinet decision, was responsible for notifying petroleum contractors of the oil supply targets and of the plans for the production, import, and sale of oil. The authority was given to the MITI Minister to make changes, if necessary; it was also declared that oil consumers should not use more petroleum than the quantities specified by Cabinet order. The MITI Minister was further given the authority to order the implementation of restrictions on sales methods in order to conserve the use of light oil, and likewise to order the sale and delivery of oil to oil dealers to ensure a “supply of petroleum to businesses and activities indispensable for the protection of the people’s lives.” In this way the government (MITI) was given powerful controlling authority, a reflection of the sense of crisis in the government and related organizations.

Although the emergency measures themselves were removed as of September 1, 1974, efforts to stockpile oil proceeded, and technological development was undertaken in energy-savings and new energy. This will be discussed in greater detail below. The Petroleum Reserve Law enacted in December 1975 required oil companies to maintain oil reserves.

The law was enacted in response to international obligations. The International Energy Agency (IEA), which was established in November 1974, required member countries to maintain petroleum reserves: private oil companies were required to maintain a 70-day stockpile of petroleum, and following the second oil crisis, that requirement was raised to 90 days’ worth. Meanwhile, the Japan Petroleum Development Corporation Law was revised to become the Japan National Oil Corporation Law in June 1978 in order to enable national government organs to stockpile petroleum, with the Japan National Oil Corporation bearing responsibility for building the reserve. As demand for LPG rose in the 1980s, LPG reserves also began to be considered a priority, and in 1991, the Petroleum Reserve Law was revised to require private LPG importers to stock a 50-day supply of imported LPG.

The November 1976 Act on the Quality Control of Gasoline and Other Fuels required distributors to be registered and to carry out quality control measures. The Advisory Committee for Energy’s Petroleum Subcommittee issued a report in December 1975 titled “About petroleum refining and sales” out of the desire to see the consolidation of primary distributors. Structural reform along these lines was sought because light-oil distribution companies were struggling, and the distribution of low-quality light oil was becoming a social concern. Thus, in the face of the challenge of the oil crisis, policy evolved from the adjustment of demand that accompanied legal measures, to long-term policy making aimed at a stable supply of energy, as for example in the June 1979 Act on the Rationalization of Energy Use.

4.1.3 “The Energy Stabilization Policy of the Showa 50 s [1975–1985]” Report

After the 1973 oil crisis, the first comprehensive examination on how best to implement energy policy was undertaken by the Coordination Subcommittee of the Advisory Committee for Energy beginning in February 1974 (Kikkawa 2011, p. 67). The subcommittee was tasked with considering (1) prospects for the primary energy supply in FY 1980 and FY 1985, and (2) international energy strategy and the securing of financial resources.

The interim report “Energy stabilization measures, 1975–1984” was compiled in August 1975, presenting the four pillars of energy stabilization policy: (1) reduction of dependence on oil and diversification of non-petroleum energy, (2) securing the stability of petroleum supply, (3) promotion of energy conservation, and (4) promotion of research and development of new forms of energy (see Table 7 below). MITI evaluated the measures on supply and demand as a whole and determined the desired allocation of energy conservation and of various supply capabilities from the point of view of achieving a stable supply of energy. This approach differed slightly from prior versions and represented a new philosophy aimed at securing a stable supply of energy through diversification of energy sources and energy conservation. The report was also notable for raising awareness that the cost burden of developing the oil stockpiles and new energy sources needed for a stable supply of energy would be borne by the beneficiaries.

Table 7 Changes in domestic energy supply sources

Furthermore, in relation to downgrading the earlier policy aim of maintaining “low-cost energy,” the report pointed out that keeping energy prices low over the long term would weaken the energy industry and thereby compromise the foundations of a stable supply of energy. It further noted that while other countries were beginning to relax their environmental regulations in order to promote energy conservation, one of Japan’s national goals remained stronger regulation. In other words, it pointed to a number of contradictions among the various policies and called for consensus to be formed among the people as quickly as possible (Table 8).

Table 8 Changes in secondary energy distribution

4.1.4 The Basic Thrust of Comprehensive Energy Policy

On April 25, 1975, the Ministerial Council on Comprehensive Energy Policy was established to formulate comprehensive energy policies for the future, evincing the Cabinet’s strong concern about the issue. The Council’s mission was to unite the Cabinet ministers so as to enable formulation of the “Economic Plan for the first half of the Showa 60 s [second half of the 1970s],” which was already in its first year. Energy policy, as one of the underpinnings of the Economic Plan, needed to be considered, and decisions were required on the appropriate economic growth rate with due consideration for the resource and energy restrictions that had followed the oil crisis.

The Council focused most on the issues surrounding the creation of a central body for nuclear-power administration, created to “promote nuclear-power generation.”

Having reviewed the Long-Term Energy Supply and Demand Plan and the interim report on comprehensive energy policy, the Ministerial Conference agreed on a policy outline titled “Basic direction of comprehensive energy policy” on December 19, 1975. The basic aim was “to advance a reduction in dependence on imported oil and the diversification of non-petroleum energy as the basis for securing a stable supply of energy.” This rested on four conceptual pillars: (1) effective utilization of domestically produced energy and promotion of quasi-domestic nuclear energy, while diffusing the risk by diversifying Japan’s overseas energy sources; (2) efforts to ensure the stable supply of oil, which would remain central to the energy supply for the time being; (3) promotion of energy conservation to reduce the demand-side burden on the energy supply; and (4) promotion of new energy development with a longer-term perspective extending beyond the 1980s. The following policies clarified the details: (1) developing domestic resources such as continental-shelf petroleum, hydropower and geothermal power, stabilizing domestic coal mining operations, and promoting LNG and overseas coal development and imports; (2) developing nuclear energy and improving the nuclear energy administration system; (3) strengthening the foundations of the petroleum industry and promotion of 90-day oil reserves; (4) securing the supply of secondary energy such as electricity and city gas; and promoting (5) energy conservation, (6) technology development, and (7) international cooperation. These constituted the government’s long-term energy policy initiatives.

4.1.5 Formulation of an “Energy Strategy for the Twenty-First Century”

In August 1976, the IEA reviewed the energy conservation policies of each of its member countries and recommended prompt government implementation of energy conservation in concrete measures, with the necessary budget to fund them. MITI took the opportunity to point out the urgency of the matter: “If the current energy supply and demand structure remains unchanged, people’s lives and industrial activities in this country will be extremely unstable with the risk of catastrophic dislocation in the future.” The Ministry had begun preparing comprehensive measures for energy conservation in February 1976, and the Coordination Subcommittee’s “Long-term vision of industrial structure” included the development of new energy as one of the conditions for realizing a “6% growth-rate economy.”

However, although the Ministry sought to pursue policies for “escaping oil dependency,” and although the Ministerial Conference, too, saw nuclear power as an important energy alternative to oil, public consensus was likely to be longer in coming. Because of the time involved in obtaining public approval, the electricity industry asked MITI to lower the goals for nuclear-power generation stipulated in the Long-Term Energy Demand and Supply Plan. Within 18 months of the plan’s formulation, deviations from it were already under way.

MITI therefore decided to review the plan early in January 1977 and to begin formulating a long-term comprehensive energy policy adapted to the new international energy situation, and the Energy Supply and Demand Subcommittee of the Advisory Committee for Energy compiled the “Provisional prospects for the long-term supply and demand of energy” by June. On that basis, the Consultative Council on Fundamental Energy Issues issued an interim report, “Promoting a comprehensive energy policy that is consistent and effective,” that strongly urged the importance of an effective comprehensive energy policy, based on funding and public agreement.

MITI meanwhile solidified its plans to add an Energy Diversification Temporary Measures Act and an Act on Temporary Measures to Promote Change in Energy Sources to the existing Energy Conservation Act (provisional names). The first of these focused on construction of power plants that were not fueled by oil and the second on diversifying industry’s demand for energy. MITI regarded these as the “three basic laws on energy” and as the pillars on which to build a long-term energy strategy of reduced reliance on oil and increased savings and efficiency in energy use. Japan’s dependency on imported oil dropped from 73.3% in FY 1975 to 57.1% in FY 1980.

About 14 months after the October 25, 1978, interim report, the General Affairs Committee of the General Energy Research Committee clarified the background to the framework described above and compiled a more detailed review of concrete measures in a report titled “Energy strategies for the twenty-first century.” This report posed the basic issues as follows: on the demand side was the promotion of energy conservation policies, and on the supply side were (1) securing the stable supply of imported oil, (2) developing and introducing alternatives to petroleum and developing energy technologies, and (3) promoting the siting of power plants.

It also proposed concrete measures on developing and introducing petroleum alternatives (number 2 above), namely, the promotion of (1) nuclear energy development, (2) coal utilization, (3) introduction of liquefied gas, (4) domestic energy (hydro/geothermal), (5) power-source diversification. The emphasis was on the technological development necessary for developing and introducing petroleum alternatives.

Under the category of “developing new technologies,” the first priority was promotion of the Sunshine Project: solar cooling, heating, and hot water supply systems (the so-called solar house) were almost ready for practical application, and the report called not only for evaluation and research on improvement through experiments in trial houses, but also other concrete measures such as the construction of solar thermal power pilot plants, and R&D in solar power generation and hydrogen energy technology. It also stressed the need for R&D on nuclear fusion and for international technical and economic cooperation on new energy and called for significant state funding to develop nuclear and new energy technologies.

Thus Japan’s energy policy shifted its emphasis after the first oil crisis from promoting an oil orientation to pursuing a stable supply of energy, and from petroleum dependency to a departure from dependency. The new priorities remained following the second oil crisis of August 1979 (see Table 9).

Table 9 The long-term plan for energy supply and demand

4.2 Electrical-Power Development and the Move Away from Oil

4.2.1 Changes in Demand for Electricity and Issues in Electrical-Power Development

The oil crisis triggered new hardships for the electric power industry. Multiple challenges struck simultaneously, including high crude-oil prices, sluggish demand for electric power, a decline in load factors, severe locational and environmental problems, and a sharp rise in financing costs.

Demand for power had been shifting from industrial (large- and small-scale electrical power) to civilian use (electric lights, electricity for commercial purposes) since the 1960s; from 1973–1985, demand for large-scale power decreased in textiles, chemicals, steel, other metals, and mining. The decrease was especially steep in such large consumers of power as the aluminum and ammonia industries. Meanwhile, the large-scale electricity usage by the machinery industry doubled, while demand in the commercial sector and for electric lights also grew steadily (Kikkawa 2011, p. 262).

The changes in electricity demand aggravated the problem of peak summer daytime hours. The load factor of each of the nine electrical power companies fell sharply in the first half of the 1970s and remained low thereafter. The decline in the load factor caused costs to skyrocket and worsened the performance of the power companies. Also contributing to their deteriorating performance was the rising cost of capital, due to soaring fuel costs and declines in the depreciation rates that covered them. Depreciation and amortization costs were the main internal collateral for the electric utilities, and the declining depreciation rate lowered their capacity to self-finance construction and thereby raised their reliance on interest-bearing debt such as corporate bonds and borrowing. Thus the cost of capital began to influence their performance.

As their performance declined, the utilities became unable to sustain a low-cost electricity supply. The nine utilities together raised their electricity rates three times in succession: in June 1974, June to August 1968, and February to April 1980. Hokkaido Power also raised its prices on its own in October 1981. The price hikes were not high compared to the increases in other public utilities, but customers nevertheless spoke of the end of low-cost electricity and the social antipathy to the rate revisions was strong.

Meanwhile, the environmental issues around power-plant location became more serious. From the 1970s into the early 1980s, the implementation of the Electric Power Development Coordination Council’s development targets never exceeded the targets themselves. There were significant delays in deciding on locations for thermal power plants in the first half of the 1970s and for hydropower in the late 1970s into the 1980s, and consistently across the years in the case of nuclear power. The Three Mile Island nuclear power-plant accident in March 1979 had a particularly strong impact. In response to the delays of power development, the government adopted the Power Source Location Act and related measures in June 1974.

These included: (1) The Electric Power Development Taxation Law, which imposed a development promotion tax on general-purpose electric utilities, (2) the Law on Special Accounts for Electric-Power Development Acceleration Measures, and (3) the Law on the Development of Areas Adjacent to Electric Power-Generating Facilities, which provided grants for the improvement of public facilities near power-supply sites. These were all aimed at making the process of selecting locations for power plants a smooth one by eliminating the difficulties arising from the fact that any given power plant might bring little direct economic benefit to its immediate area. The policy was expanded in October 1971 with the establishment of a special subsidy system for power plant locations. Power-supply development thus lost some of its autonomy, instead becoming part of broader policy coordination efforts.

4.3 The Energy Conservation Act

Japan’s total energy consumption rose almost consistently, but the rate of increase was lower than the rise in GDP, meaning that energy efficiency was advancing (Kikkawa 2011, p. 369). During this period, energy use changed from a 4:1:1 ratio of industrial, civil, and transportation sectors in 1973 to 4:3:2 in the early 2000s. This reflected the high efficiency of energy use in Japan’s industrial sector, the result of post-oil crisis energy conservation policy.

The government established a national conservation campaign based in the Headquarters for the Campaign to Care for Our Resources and Energy following on an August 1974 Cabinet Decision taken in response to the first oil crisis. MITI, recognizing the need for energy conservation policy, also considered drastically expanding the existing Heat Utilization Law into an Act on Promoting the Rationalization of Energy. The Act called for targets for reducing unit consumption of energy and for drafting industry-specific implementation plans. The Act was strongly colored by the preference for control that arose out of the sense of crisis, and for this reason did not reach the Diet floor. But improvements in unit consumption were promoted through the special measures later taken in taxation (such as special depreciation of energy-saving equipment) and the creation of loan systems indicated in the basic guidelines of energy conservation policy.

“The need for and challenges of energy conservation policy,” compiled in November by the new Energy Efficiency and Conservation Subcommittee in the Comprehensive Energy Research Committee, called for the following: (1) responding to the instability and high costs of energy by reducing the growth in energy demand as much as possible without substantially affecting the economic growth path, and (2) improving all sectors of economic society to orient them toward an energy-conserving model, and (3) promoting legislation and regulations for energy conservation. The Act on Promoting the Rationalization of Energy (Energy Conservation Act) was passed in June 1979.

The basic framework of the act included the creation of guidelines for the rationalization of energy use in factories, construction materials, and machine tools, and guidance when needed to ensure the implementation of the guidelines, but left out the measures with the strongest “control” aspects. The framework for implementing energy conservation policy, although premised on industry’s making its own conservation efforts, was thus strengthened to include set guidelines for rationalization and measures for enabling guidance and recommendations to help achieve them.

4.4 Coal and Resources Policy

4.4.1 The Development of Coal Policy

Although domestic coal production shrank in the 1960s, coal’s role as an energy resource did not decline. Imports of coking coal, which had rapidly increased in quantity before the first oil crisis, remained high in its aftermath, and imports of fuel coal sharply increased in the 1980s. The shift from domestic to overseas supplies of coal raised the need for structural adjustment policies for the domestic coal industry as the aim shifted from the industry’s maintenance and rationalization to its gradual contraction. It also required maintaining a stable supply of overseas coal, and promoting the development and dissemination of clean-coal technology (Kikkawa 2011, p. 207).

Structural adjustment measures on coal began with First Coal Policy in 1963, and continued through eight stages until 2001. In the Third Coal Policy from 1967 to 1969, the target for domestic coal production target was set at 50 million tons per year, and even with promotion of the “Fluid Energy Revolution,” various policy instruments were used to try to reach that target.

The Fourth Coal Policy (1969–1972) was the first not to set production targets, indicating that the shift toward the gradual contraction of and exit from the industry was under way. The production targets were revived in the Fifth Coal Policy of 1973–1976 but sharply scaled down to 20 million tons. The Sixth Coal Policy (1976–1982) modified the targets slightly upward due to the oil crisis, a level that was retained in the next stage (1980s).

Meanwhile, summit talks between Japan and Australia, which had an export ban, led to the launching of Australian coal exports to Japan. Japan also sought to stabilize its import supply by offering subsidies and technical cooperation to coal-producing countries (Table 10).

Table 10 Outline of Coal Policies (IV–VIII)

4.4.2 Mineral Resources Policy

The Mining Industry Council Subcommittee on Mining laid out the direction to be taken by policy on mineral resources in its June 1972 “Basic direction of future mining policy” (Kikkawa 2011, p. 235). This served as the foundation for exploration and development of mining in close alignment with anti-pollution measures. The Act on Special Measures for Pollution Caused by the Metal Mining Industry was issued to address damage caused by abandoned mines. Reorganization of the Metallic Minerals Exploration Promotion Agency followed, with a 1973 expansion into the Metal Mining Agency of Japan (MMAJ). MMAJ became responsible for an overall policy on mineral resources resting on the following: (1) promotion of domestic exploration, (2) support for the development of overseas resources and cooperation with developing countries on resource development, (3) improvement of the rare-metal stockpiling system, and (4) prevention of mining pollution originating in abandoned mines.

MMAJ’s predecessor had since 1964 been conducting detailed surveys of geological structures in order to identify the most stable sources of mineral resources and to discover superior mines. The surveys, which consisted of three stages—regional geological surveys, then detailed surveys, then corporate exploration—were carried out nationwide and are regarded as having achieved significant results. Nine of the survey cases resulted in the development or expansion of mines; the initial regional surveys led to the 1981 discovery of gold deposits in the Hokusatsu/Kushikino area of Kagoshima Prefecture, and became the Hishikari mine run by Sumitomo Metal Mining Co., Ltd.

The major policies for supporting the development of overseas resources included: (1) an overseas exploration financing loan system and debt guarantee system (implemented beginning in FY 1968), (2) overseas geological structure survey system (from FY 1968) and overseas joint geological structure survey subsidy system (from FY 1974), and (3) basic research on resource development cooperation. The overseas geological structure survey subsidy system was designed to subsidize up to one-half the expenses borne by Japanese corporations undertaking surveys in collaboration with foreign corporations. By FY 2005, 71 projects had been conducted under the overseas geological structure survey system and 42 projects under the subsidy system. The basic research was aimed specifically at enabling the government to support mineral-resources development in developing countries, with 180 regions in 46 countries surveyed by FY 2006. These policies for supporting overseas resource development have steadily achieved results.

4.5 Large-Scale Industrial Technology Development and the “Sunshine” and “Moonlight” Projects

4.5.1 An Emphasis on Basic Technology

In December 1974, the Agency of Industrial Science and Technology established the Research Group to Formulate Long-Term Strategies for the Development of Industrial Technology as a private advisory body of the director general. Its final report, “Technical development initiatives for the future” (National Institute of Advanced Industrial Science and Technology, ed., 1977), cited the importance of “cultivating basic abilities” both because “Japan has in the past been criticized for using the results of research undertaken by other countries free of charge” and in order to build a framework for following up on breakthroughs in research (Sawai 2011, p. 25). The research group’s conclusions were passed on to its successor (Research Group on Long-term Planning of Industrial Technology Development), which was also established as a private advisory body of the director in September 1977. The interim report of August 1980 continued to point to the importance of “basic technology,” leading to the launching of the Research and Development Project of Basic Technologies for Future Industries in October 1981.

The recognition that technical problems are not merely matters of technology but part of industrial policy as a whole, and requiring promotion as such, led to the establishment of the Industrial Technology Council, the 1973 successor to the Industrial Technology Commission. The “Progress report on new energy technology R&D,” “Summary of promotion of new energy technology R&D,” and “On ways of promoting new energy technology development,” which were issued almost immediately upon the Council’s establishment (in October and December 1973 respectively), produced results in the form of the Sunshine Project. The February 1975 report, “On ways of developing energy conservation technologies,” was the occasion for the launch of the Moonlight Project in FY 1978. The interim report of August 1975, “On ways of advancing future industrial technology policy,” presented the basic direction of industrial technical policies toward the late 1970s and explained that: (1) Since Japan’s industrial technology had reached the level of that in Western countries, Japan could now make the shift from dependency on foreign technology to self-directed technological development, and that (2) whereas Japan’s technological development had hitherto been more private sector-led than that in the advanced countries of Europe and America and had mainly focused on improving technologies introduced from overseas, the government’s role of developing industrial technology would henceforth become increasingly significant.

4.5.2 The Large-Scale Industrial Technology R&D System

The Industrial Science and Technology Agency launched the National Research and Development Program (“Large-Scale Project”) in 1966 (Sawai 2011, p. 130). Based on a November 1966 report by the Industrial Structure Research Advisory Council’s Industrial Technology Committee in November 1963, it had been created to facilitate the shift from dependency to self-reliance in technological development, to carry out the government’s leadership role in the process, and to formulate a plan for priority technology development and the promotion of research cooperation by industry, academia, and the government. The Large-Scale Project promoted 31 projects before being restructured in FY 1993. Its budget trended upwards until peaking at 16.8 billion yen in FY 1981. It was greatly reduced to 11 billion yen in FY 1984, and then leveled off to about the 15 billion yen level (Table 11).

Table 11 List of large-scale projects

The Large-scale Technology Subcommittee of the Industrial Technology Council and of the Subcommittee for each project (1) selected the projects and (2) formulated and evaluated plans for their R&D and implementation, while the Large-Scale Industrial Technology Committee (organized by the Agency of Industrial Science and Technology) selected the parties for outsourcing and carried out evaluation of the R&D.

Project leaders included researchers at the National Research Institute and the director and executive director of the Research Association for Mining and Manufacturing Technology. The candidate R&D themes were proposed by the original departments or the testing laboratory based on the needs of the public and of industry. Themes were then selected from among these proposals based on budget and other constraints, and a scrap-and-build approach was taken to maintain the projects and the National Research and Development Program as a whole.

The number of participating companies in the Large-Scale Projects came to 479 for a total of 31 projects. Eight of these companies participated more than 10 times. The main companies involved were in general electric manufacturing, general machinery, steelmaking, and the like.

A 1985 evaluation of the Large-Scale Projects by the General Coordination Department Development Program Office concluded that they had four advantages. First, the projects were not restricted by technical subject or field and important or urgently needed technologies could be developed. Second, the program enabled technological development that could not be done by the private sector because of the long lead time and excessive risks involved. Third, the links among industry, academia, and government were advantageous. Fourth, the projects could launch domestic implementation of international research cooperation in areas such as advanced robotics.

However, the evaluation also pointed out the need to respond to the changing environment by upgrading Japan’s international standing, improving Japan’s technological level, improving the R&D potential of Japanese companies, and raising social interest in advanced and basic technology. To do so, changes were needed in operational areas such as: (1) responding to internationalization, (2) research cooperation with other institutions and systems, (3) strengthening ties with industrial policy, (4) implementing intermediate evaluations, and (5) strengthening of the surveys of technical trends.

By field, the Large Scale Projects were as follows: in the petrochemical industry, “new production methods for olefin” (1967–1972) and “production methods for making olefin from heavy oil” (1975–1981); regarding the shortage of industrial water, “seawater desalination and by-product utilization” (1976–1977); in resource development, “manganese nodule mining systems” (1981–1989). Besides these, projects included: technologies such as “extreme work robots” (1983 to about 1990), expected to be useful in fields such as nuclear power and marine science and disaster prevention; and the first international joint-development project, “propulsion systems for hypersonic transport” (1989–1998).

4.5.3 The “Sunshine” and “Moonlight” Projects

Proposals on solar energy and hydrogen energy were submitted when the Industrial Technology Institute asked for Large-Scale Project themes in February 1973. Project budget limits and time constraints made it hard to pursue them within the Large-Scale Project framework. The Research and Development Office of the National Institute of Advanced Industrial Science and Technology therefore sought other approaches. The Sunshine Project was launched in August 1974 following the Industrial Technology Institute’s report to promote research in solar, geothermal, hydro, and coal gas as part of the new energy developments being undertaken by the Institute (Sawai 2011, p. 246).

The Sunshine Project was conceived prior to the October 1973 oil crisis, and based on the philosophy stated in MITI’s July 1973 New Clean Energy Technology Development Plan: “The Sunshine Project will replace existing petroleum-based energy systems with permanent clean energy systems by utilizing pollution-free and inexhaustible energy supplies such as solar energy, hydrogen energy and geothermal power…. It is an ambitious national technology development plan to develop the technologies necessary for overcoming the energy crisis that will be caused by depletion of oil resources by the year 2000.”

The plan was advanced with the cooperation of the private sector, centering on the Sunshine Project Promotion Committee established in April 1974, but limits to this approach became apparent as the projects moved from the basic research stage to the launching of research at pilot plants. In April 1977, the task of implementing the work was consigned to the Electric Power Development Co. As the effort grew in scale, a more specialized organization became necessary, and the New Energy and Industrial Technology Development Organization (NEDO) succeeded to the role of the Electric Power Development Co.

With the second oil crisis of 1978–1979, the Agency of Industrial Science and Technology hoped that the Sunshine Project would make preliminary contributions to yield about 5% of the total energy supply by FY 1990 (the total at that time was 1.6%). R&D promotion was therefore accelerated. Financial support was provided based on the Law Concerning Promotion of Alternative Energy Development and Introduction of Alternative Energy of May 1980, which secured the budget under a special account.

“About new developments in the Sunshine Project,” the August 1982 mid-term report of the Industrial Technology Trial/New Energy Technology Development Committee noted that there had been a gradual relaxation of oil supply and demand. That conclusion was based on the unchanged expectation that the supply of new energy would increase over the long term. Of particular importance was the emphasis on three methods of new power generation: solar power (including amorphous solar cells), which had high potential for practical application; liquefaction/gasification of coal; and large-scale deep geothermal heat. In other words, the emphasis shifted not to photovoltaic generation but to solar thermal power generation. NEDO decided to launch R&D on power amorphous solar cells in FY 1983. This thinking prioritized continuity in the Sunshine Project, but also showed that the sense of urgency tended to fade as energy supply/demand pressures eased (Table 12).

Table 12 Budgets related to the Sunshine Project (Unit = 100 million yen)

Meanwhile, plans were made for the Moonlight Project based on conservation measures put together by the Industrial Technology Institute in November 1977 and on the report compiled by the Energy Efficiency and Conservation Subcommittee (Sawai 2011, p. 259). The Large-Scale Projects on “waste-heat utilization systems technology” and “Magneto Hydro Dynamics, MHD power generation” were incorporated into the Moonlight Project in FY 1978, its first year. The same year also saw the launching of a new “high-efficiency gas turbine” project. The National Research Institute was in charge of carrying out basic research, while private sector companies directed the systems development. Project implementation took many forms. Before NEDO’s establishment in May 1980, the Agency of Industrial Science and Technology directly entrusted implementation to companies in some cases, and in others to Technology Research Associations that it organized.

Research on waste-heat utilization technology, for example, relied on the former approach, and development of a high-efficiency gas turbine the latter. The structure of the Moonlight Projects rested on the following six pillars: (1) large-scale energy conservation measures, (2) the development of leading basic energy-conservation technology, (3) international research cooperation efforts, (4) the establishment of and surveys on methods to achieve comprehensive effectiveness in energy-conservation technologies, (5) assistance to private-sector corporate development of energy-conservation technology, and (6) standardization of energy conservation. The first of these included the “New Battery Electric Power Storage System” project (total budget 17.5 billion yen) of 1980–1991 for R&D on storing off-peak electric power in a new kind of battery and then discharging that power during peak hours so as to equalize the load on the system (Table 13).

Table 13 Budget related to the Moonlight Project (Unit = 100 million yen)

4.5.4 Grants to the Private Sector for Technology Development

The Industrialization Test Grant system was established in 1975 to provide grants and subsidize part of the expenses incurred by private enterprises for research and development for important technologies (Sawai 2011, p. 295). Priority technology subsidies had been expanding with the growth of additional subsidies for large-scale core technologies, but the budget decreased year by year in the 1980s. In FY 1988, the “priority technology subsidies” were abolished because of steady improvement in corporate technological capability and the extension of the R&D outsourcing system promoted by the government in forms such as the Large-Scale Projects.

Even with the shrinking of “priority technologies,” however, various subsidy systems were created in the 1980s, including the Subsidy System for Practical Development of (non-petroleum) Alternative Energy Technology (FY 1980), the Subsidy System for Practical Development of New Power Generation Technology (FY 1981), the Subsidy System for Industry Revitalization R&D Expenditures (FY 1983), and the Subsidy System for Practical Development of Technology for the Rationalization of Energy Consumption (FY 1983). However, because subsidy policies during these years tended to face review or elimination in response to international criticism, the FY 1996 Subsidy System for the Development of Technologies for Creating New Industries suggested reevaluating their effectiveness as tools for addressing the urgent need to generate new industries.

Meanwhile, based on the Law on Research Associations for Mining and Manufacturing Technology (May 1961), the Mining and Industrial Technology Research Association System addressed the issue of efficient utilization of human and financial resources in research through joint experimental research on industrial production technology (Sawai 2011, p. 312).

The plan was to give such associations corporate status in order to promote collaborative research by industry. The associations operated on a philosophy of mutual aid.

This method was also used in the framework of Large-Scale Projects and Important Technologies, and many research associations were established by the year 2000. The pace of association establishment weakened from the 1990s on, however. A policy document prepared by the Legal Review Committee in April 1993 stated that “technical innovations by companies were rather more hindered than otherwise by collaborative research” and called for a “review of the National Research Institutes, especially of the regional laboratories” and “reviews of the Large-Scale Projects and other R&D by Research Associations and expansion of the subsidy system for industry-university collaborative research.”

The special tax measures for promoting R&D included the Increased Research and Research Tax Deduction System established in 1967. This was a tax deduction for a certain percentage of expenses exceeding the previous highest R&D expenditures. A 1973 revision added support for expenses for advanced technical training related to computers and information processing. In FY 1985, the Tax Program for Promoting R&D in Basic Technologies (high-tech taxation system) further extended this system. Tax deductions were recognized for the depreciable assets needed by corporations to conduct test research if they met certain requirements. The Special Tax Credit System for Test Research was established in 1993, making tax deductions permissible in order to promote public and private research and research on innovative environmental technologies.

The Japan Development Bank (“the Bank”) established a long-term, low-interest loan system in 1968 to finance new domestic technologies and the promotion of businesses for new products and the commercialization of products.

In March 1980, the financing system was expanded based on the Industrial Structure Council’s “Industrial policy of the 1980s.” What the Bank had called “financing to turn new technologies into businesses” became “loans for new technology development.” The Bank also made improvements such as adding infrastructure construction and acquisition to the targets for financing loans with the goal of “business development” as a preliminary step in corporate planning. Also, in FY 1985, it added funds for technological development (financing for non-equipment uses) to the financing for general corporate technology development (“new technology development”).

However, industrial technology promotion lending amounts provided by the Bank declined sharply after peaking at 92.8 billion yen in FY 1992. This was in part because companies expanded their own financing and diversified the sources, both domestic and international, of their funding, but it is also true that the Bank came under pressure to review its traditional policy methods.

4.5.5 Patent Law Revision

The four industrial property rights laws regulating Japan’s intellectual property system (Patent Law, Design Law, Trademark Law, Utility Model Law), fully revised in 1959 (effective in 1960), provided the foundation of the subsequent framework. Nevertheless, the rapid increase in applications accompanying rapid growth made it difficult to respond promptly enough either in granting accurate rights or in aligning them internationally. The patent law was revised in 1970 and again in 1975 and 1978, and further reforms took place after 1980 (Nakayama 2013, p. 199).

The 1970 revision began with the 1st Industrial Property Legislation Revision Deliberation Council held in December 1962. The Council put together a report in July 1965 and urged that a revised law be submitted to the Diet, but the proposal was scrapped without substantive deliberations.

In November 1966, the Industrial Property Council was once again consulted and discussion continued. The Council again made a report in November 1968, and in May 1970, the Partial Amendment of the Patent Law was passed. Amendment of the review system, including the adoption of a non-examination system, came under discussion but was not realized, and it was in the 1993 revision that a simplified examination method was adopted in the utility model system. Meanwhile, large institutional measures for prompt vesting of rights, such as the introduction of the Early Publication System and of the Examination-on-Demand System, have promoted large institutional measures toward early vesting, and practical improvements were made for speeding up the appraisal and appeal process and for clarification, including time limits for amendments and the introduction of pre-assessment reviews in cases of appeals after patent refusals.

Moreover, because of the gains Japan made in technical capability due to rapid growth, patents on chemical substances were considered necessary for protection, and the argument was gaining strength that non-patent status could itself be motivating.

Three areas gained access to patents as a result of these changes: inventions of chemical substances, inventions of foods and beverages or of flavors, and pharmaceutical inventions or inventions of manufacturing methods whereby two or more existing pharmaceuticals are combined to make one new one. The multi-claim system permitted multiple patent claims for one invention, and was in use in many countries. However, Japan had been using a single-claim system—one patent per item invented—ever since the patent law of 21 years earlier. While the Industrial Property Council had discussed reexamining the question, as mentioned above, its deliberations were not reflected in the system’s revision, but because members of the 1970 Patent Cooperation Treaty (PCT) were required to adopt the multi-claim system, Japan was forced to consider its introduction. In other words, ratification of the PCT challenged Japan to adopt a multi-claim system for the sake of international coordination and the harmonization of the international system as a whole.

Trademark law was also amended in 1975 (Nakayama 2013, p. 243). This was first because the number of applications for trademark registration had by 1973 increased by 5.3 times its level in 1960, the year the law came into effect. Second, Japan was considering joining the Trademark Registration Treaty (TRT), which created an international registration system for trademarks, and shortening of the application process was indispensable for that purpose. The “report on the revision of the trademark system” compiled by the Trademark Subcommittee of the Industrial Property Council System Reform Committee in December 1974 emphasized that the rapid processing of the trademark application system was the most urgent task of trademark administration and that in addition to requiring legal reform and improvements in the operation of the system, the government should ask industry for cooperation in, for example, adopting self-restraint when submitting applications for registrations that are not immediately needed. There were four main revisions of the law, including revisions to the regulations on renewal registration. Attempts were made to speed up the process.

5 Policies to Address Structural Depression in Basic and Consumer Industries: The Large-Scale Retail Stores Law and Small and Medium-Sized Enterprises

5.1 Policies on Industrial Structure Adjustment (The Industry Stabilization Law and the Law on the Structural Improvement of the Textile Industry)

5.1.1 Law on Temporary Measures for the Stabilization of Specific Depressed Industries

Japanese economic growth had been sluggish since the first oil crisis in 1973, and it was during this period that the issue of “structurally depressed industries”—those whose capacity utilization rates and profitability were low over the long-term—became apparent. MITI considered various countermeasures to the problem in new policies targeted for FY 1978, and in December 1977 Prime Minister Takeo Fukuda, recognizing the need for legislation, directed the government to enact or amend the relevant laws. MITI focused on policies to scrap excess capacity and announced a bill in January 1978 (Imuta and Washizawa 1993, p. 23). Its main points were as follows:

• (1) The competent minister, with reference to the opinion of the Industrial Structure Council, will prepare a basic stabilization plan for the structurally depressed industries defined by this law, that will stipulate how facilities are to be scrapped in a planned manner and how joint projects are to be undertaken.

• (2) In the event that the scrapping of facilities stipulated in this plan does not progress smoothly, the competent minister shall consult the Industrial Structure Council and direct the relevant business entities in the specified industry to undertake jointly the scrapping of plants (mandated cartel).

• (3) The competent minister, taking into account the opinion of the Industrial Structure Council, may impose limits or prohibitions on outsiders (those not participating in the mandated cartel) regarding the establishment of new facilities.

• (4) Exceptions to the Antimonopoly Law will be made as appropriate to exclude mergers and business transfers in the case of the mandated cartels of businesses belonging to the structurally depressed industry under consideration. In this case, approval of the mandated cartel and mergers must be made in consultation with the Fair Trade Commission.

• (5) The State will establish a credit fund for structurally depressed industries, to offer credit guarantees on loans and facilitate the financing needed to implement the scrapping of facilities in accordance with the basic stabilization plan.

As can be seen, the proposal gave MITI great authority, stipulating that the competent minister could issue directives to the relevant industries regarding joint actions such as the scrapping of facilities, and in some cases could prohibit capital investment in such industries, impose fines, and authorize exceptions to the application of the Antimonopoly Law for certain joint actions and mergers.

The Japan Fair Trade Commission (“Fair Trade Commission [FTC]”) strongly objected to these proposals. This led to the deletion of the portions on prohibitions of new investment, penalties, and exceptions to the Antimonopoly Law, by decision of the Chief Cabinet Secretary. The resulting Law on Temporary Measures for Stabilization of Designated Depressed Industries (“Industry Stabilization Law”) was enacted in May 1978.

The Industry Stabilization Law was intended to be in effect only until 1983. The depressed industries designated by the law were the targeted manufacturing industries: open-arc furnaces, aluminum smelting, synthetic fibers, and shipbuilding. The competent minister prepared a stable basic plan for each designated industry, and established the scrapping method for each case. Instructions for joint action were excluded from application of the Antimonopoly Act with the consent of the FTC. A Trust Fund for Designated Depressed Industries by the Japan Development Bank and private sector investment provided loan guarantees for scrapping facilities (Table 14).⁵

Table 14 The enforcement status of the Industry Stabilization Law

5.1.2 Structural Improvements in the Petrochemical Industry

The oil crisis had a serious impact on the chemical industry and the basic materials sector. The soaring price of naphtha (crude gasoline), which was the main raw material of basic chemistry, pushed down both exports of and domestic demand for major chemical products, leading to growing concerns about overcapacity. From the latter 1970s to the 1980s, therefore, policy became concerned with the scrapping of industrial facilities and the improvement of the industrial structure (Yamazaki 2011, p. 60). Meanwhile, the soaring price of crude oil spurred energy-saving investment and technological innovation, along with the diversification of raw fuel. Under these circumstances, the chemical industry from the 1970s to 2000 shifted the composition of its shipments away from bulk chemicals to fine chemicals.

Meanwhile, in November 1976, MITI organized a study group on the international competitiveness of the petrochemical industry in order to put together the necessary measures concerning it. The final report of July 1978 called for (1) strengthening the petrochemical companies’ negotiating position on the price of the raw material naphtha, (2) improving the structure of purchases, for example by turning naphtha imports into a jointly operated business, and (3) diversifying the raw materials used by the industry The second of these led in September 1978 to the establishment of seven chemical ethylene centers by the Petrochemical Feedstock Importing Co. (PEFIC).

With the second oil crisis, the Japan Petrochemical Industry Association made structural improvements based on the final report (January 1981) of the Raw Materials Research Association that was established in October 1979. This will be described in Chap. 3.

5.1.3 Structural Improvements in the Textile Industry

The 1967 Law on Extraordinary Measures for the Structural Improvement of Designated Textile Industries (Structural Improvement in Textiles) was due to expire in June 1974, and the need to consider further policy measures therefore came to the fore (Matsushima 2012, p. 23). In response to consultations with the Textile Industry Council and the Industrial Structure Council in October 1972, a report titled “On textile industry policy in the 1970s” was compiled in October 1973. The report said first that given the signs of change in the international environment (textile industry growth in developing countries), Japan must change its traditional method of relying on lower production costs to enhance competitiveness and instead seek to make higher-value-added products. The trends in demand suggested that luxury, diversification, and individualization were progressing due to rising personal income, but that none of these was expected to increase total demand. The report pointed out the importance of an accurate grasp of information on consumers and of the means of responding to them.

Second, with regard to the Structural Improvement in Textiles Law, the scrapping of excess capacity and the modernization of facilities were still considered necessary tasks. Third, regarding the industry’s new trend of responding to environmental changes, the report pointed out the growth of the apparel manufacturing industry and the related fashion industry. In sum, the report located the future of the textile industry not in the pursuit of modernization (in other words, the merits of scale), but rather in knowledge-intensity. This required (1) strengthening information-gathering about consumers, (2) strengthening product development, (3) strengthening inventory management and sales functions, (4) collaborating naturally among industries and processes, and (5) modernizing and rationalizing logistics systems.

The Special Textiles Law was partially revised based on the report, and its name changed to the Law on Extraordinary Measures for the Structural Improvement of the Textile Industry (Textile Law). It was put into effect in May 1974 for a five-year period. Whereas the Special Textiles Law had targeted just four industries, the new law was designed to cover all the textile industries and international competitiveness was removed as one of the aims of the Law. The Law was characterized in particular by its promotion of “the development of new products and/or new technologies” and modernization in order to enable the sound development of the industry. In addition, the Minister was to establish guidelines for structural improvement, assuming the existence of an intra-industry knowledge-intensive group to serve as the business entity. This group would itself formulate a Structural Improvement Program, such as the development of new products, in accordance with the guidelines, and obtain the approval of the Minister. The Textile Industry Rationalization Agency had been established on the basis of the Special Textiles Law and was responsible for purchasing facilities, financing and lending, guaranteeing debt, and other measures. The promotion of new product development was now added to its tasks.

The outlook for the industry under the Textile Law was not necessarily convincing to policymakers or industry. Pressures from imports were increasing, and the textile industry and the small- and medium-sized spinning industries that felt the greatest impact were intensifying their calls for import restrictions. The Bureau of Lifestyle and Industry set up a private advisory body known as the Textile Issue Discussion Group in September 1975 and searched for an appropriate response to the problem. Its November report, “On immediate measures for textiles,” pointed to (1) import problems, (2) structural improvement problems, (3) distribution problems, and (4) industry efforts related to year-end financial problems and the need for policy measures. In response, the Textile Industry Council issued its own proposals in its December 1976 “Recommendation on the new textile industry” to the Minister.

The recommendations were intended to adhere to the fundamental direction of the Textile Law while providing thoroughly detailed plans for: (1) clarifying consumer trends, (2) strengthening vertical linkages, (3) emphasizing the apparel industry, and (4) facilitating a smooth transition. These issues were specified in order to reflect the underlying thinking that Japan would not resort to imposing limits on trade because to do so would inevitably undermine Japan’s position as a trading nation.

Specific measures for carrying out these recommendations were not immediately developed. Even so, against a backdrop of rising import pressures, policies on cartel-based production and pricing coordination, and zero-interest financing of purchasing funds for excess capacity were advanced in 1979. In addition, based on the Industry Stabilization Law of May 1978, the synthetic textiles industry proceeded with disposing of its excess capacity.

With the expiration of the Textile Law on the horizon, the Textile Industry Council and Industrial Structure Council issued a report in November 1978 titled “On the future improvement of the structure of the textile industry” (Yamazaki 2011, p. 52). On the premise that economic recovery was not going well, that domestic and international environmental requirements were changing, and that the textile industry in general was obviously experiencing excess capacity, the report urged that the textile industry should take the path of: (1) promoting the consolidation of know-how, (2) developing the apparel industry, (3) collaborating on production and distribution, and (4) correcting the excessive competitiveness that characterized the industry. In concrete terms, it suggested that the Textile Law be extended by another five years. The tasks that had been planned when the law first went into effect had basically been followed, and more time was needed for complete implementation of the framework, but the emphasis of the 1979 revision was to shift to promotion of the apparel industry. Based on these revisions, for example, the Textile Industry Structure Improvement Business Association (formerly the Textile Industry Rationalization Agency) established the Apparel Industry Promotion Center and promoted various measures, including development of human resources.

5.1.4 Structural Improvement of the Pulp and Paper Industry

The Industrial Structure Council issued a committee report on the pulp and paper industry in October 1972, titled “The paper and pulp industry in the 1970s,” designating the following as policy issues with respect to this industry: shifting away from polluting industries, implementing measures to address resources, improving the supply system and the composition of companies, facilitating distribution, and other issues (Matsushima 2012, p. 131).

The need to resolve the water-pollution problem arose because of the damage to fisheries in 1958 caused by wastewater from paper pulp factories. The resource issue was that, although raw materials were plentiful in the early 1970s, demand was predicted to increase rapidly in the 1980s, meaning that measures to secure overseas resources would be important. It was recognized that Japan would need to participate in the development of resources overseas, through afforestation projects, for example, and to promote the shift of production to locations overseas. Issues such as the composition of firms were related to improving international competitiveness in the face of increasing paper and pulp imports. Many companies were small in scale and struggled chronically with overcapacity, because the paper and pulp industry had not yet been able to secure the advantages of scale. It was therefore necessary to consolidate the investment entities and rationalize investment in capacity, and at the same time, because demand was beginning to diversify, to facilitate distribution.

However, as a result of the two oil crises, the pulp and paper industry experienced an increase in energy costs and a decline in demand (meaning a structural downturn). The Industrial Structure Paper and Paper Industry Committee, in its March 1981 Pulp and Paper Industry Vision for the 1980s, singled out the following needs: (1) to effect structural improvement, (2) to change management awareness, and (3) to achieve a stable supply of raw materials. The highest priority in structural improvement was placed on the problem of excess capacity. Solving the problem, according to the Vision, would require, firstly, a shift in company consciousness to an awareness of shared interests and moderated behavior, and secondly, advancing on the premise that the companies would carry out these changes on their own, even if public intervention turned out to be required. The background to the emphasis on voluntary change by the companies was that in the pulp and paper industry, the corrugated cardboard industry had been designated to receive government directives through the structural improvement activities that were based on the Industry Stabilization Law, and had carried out facilities adjustment as a result, but had nevertheless seen their business deteriorate. From May 1971, wood-free paper, coated paper, and unglazed grocery paper were struggling enough that they received approval to form a Depressed Industry cartel, but the structural improvement in this industry did not achieve the desired results.

5.2 Measures to Modernize Distribution

5.2.1 Establishment of Large-Scale Retail Store Law

Distribution policy after the war placed a high value on the role of the distribution industry in providing employment opportunities. Policies were enacted to protect small and medium-sized retailers, including the Department Store Law (1956) and the Law on Special Measures for the Adjustment of Retail Business (1959) (“Retail Law”) (Ishihara 2011, p.27). However, as inflation had become a social problem since the beginning of the 1960s, MITI began to look to supermarkets to play a role in lowering prices and therefore was reluctant to apply the Department Store Law to supermarkets.

In response to the workings of these laws, small and medium-sized retailers began in the late 1960s to seek regulation of supermarkets as “pseudo-department stores.” Department stores, which were subject to restrictions on opening branches, also were dissatisfied with the inequality in the application of the law. Meanwhile, liberalization of capital moved forward in the distribution industry, with retail specialty stores designated for liberalization in the second round in 1968. Full liberalization of the retail industry took place in June 1975. This raised concerns about giant foreign retailers entering the market. Thus, distribution policy from the late 1960s to the early 1970s faced an array of challenges: deciding on immediate price policies and consumer interests, modernizing of distribution by nurturing supermarkets, addressing department-store dissatisfaction with the “pseudo-department store” issue, addressing the small and medium-sized retailers’ demands for regulations on supermarkets, capital liberalization, and so on.

In August 1972, the Distribution Committee of the Industrial Structure Council compiled a report titled “Retail commerce under innovations in distribution—Toward revision of the Department Store Law,” which called for easing the restrictions in the Department Store Law with an eye to consumer interests. The report also said it would be necessary to develop some kind of coordination process given the disparity in competitiveness between large and small-scale retailers. Reflecting this view, the Department Store Law was abolished in March 1973 and replaced with the Law Concerning the Adjustment of Retail Activities by Large-Scale Retail Stores (“Large-scale Retail Stores Law”).

The Large-Scale Retail Store Law adopted a building principle according to which large-scale retail stores were defined as those with store areas of 1,500 m² or more in the building (or over 3,000 m² in specially designated cities) (see Fig. 5. Note that it includes later revisions and supplementary measures). A builder planning a new large-scale retail store was required to notify MITI of a set of stipulated items; the Minister had to be notified for plans for a retail business at the store four months prior to the business start date (Article 5 notification). The MITI Minister was then to judge whether there was any risk of the new store’s affecting the surrounding small and medium-sized retailers. Where there was such risk, the Minister would solicit the opinion of the Large-Scale Retail Stores Council, which was composed of academics and others, and recommend reductions in the number of days the store could be open, or the size of its floor-space, and other matters. The Large-Scale Retail Stores Council also had an obligation to hear the opinions of the local Chamber of Commerce and Industry, consumers, retailers, and others that submitted them based on a Ministerial ordinance. The Chamber of Commerce and Industry, when deliberating, was supposed to consult with the Commercial Activities Coordinating Committee, which, like the earlier Department Store Law, was established within the Chamber of Commerce. The Commercial Activities Coordinating Committee consisted of representatives from commerce, consumers, and academic experts. As described above, the Large-Scale Retail Store Law was new in that it adopted a notification system requiring preliminary examination as part of the coordination policy. The preliminary examination was ordinarily literally a notification system, but in more extreme cases, it functioned more like a de facto permission system.

Fig. 5

Sources Partial revision of Ministry of International Trade and Industry Policy Bureau Commercial Section, ed., “The Large-Scale Retail Law Henceforth—The Nature of the Reconsideration of the Revised Law [Report of the Joint Meeting of the Industrial Structure Council, SME Policy-Making Council]. Trade and Industry Survey Group, 1994, p. 126. In the case of the second type of large-scale retailers, replace “MITI Minister” with “prefectural governors.”

Procedures for processing store openings, based on the Large-Scale Retail Law (LSRL) (Ishihara 2011, p. 77).

5.2.2 Revision of the Large-Scale Retail Store Law

Efforts to open large-scale retail stores after the establishment of the Large Store Law won local understanding relatively smoothly in districts with few large retailers, which characterized many cases, but intense disputes arose in some areas, gradually highlighting the problems of the Law’s approach to coordination (Ishihara 2011, p. 43). In response to the formal process launched after the Article 5 notification, merchants had to seek consultations and discussions. In some cases, the new stores’ opponents did not accept requests for preliminary negotiation, and some local governments forced them to engage in preliminary negotiations. However, because preliminary consultations of that kind were not formal procedures under the Large-Scale Retail Law, negotiations were often prolonged and resolutions were sometimes reached through the offer of settlement monies. Unofficial coordination activities took on greater significance.

Moreover, even those large retailers that were not subject to the law (because their stores were under 1,500 m² in area) were threatening to general retailers of the 100 m² range, leading some local governments to enact ordinances and outline additional controls and regulations. The ordinances calling for voluntary adjustment, pioneered by Toyonaka City in April 1976 and Kumamoto City in November, spread to many cities after the government in essence approved them in March 1977. According to a survey conducted in 1992, 432 of 1,030 municipalities surveyed enacted ordinances, outlines, or internal rules. In addition to these, the chiefs of local Chambers of Commerce announced that the opening of large stores would be frozen after the mid-1970s.

In response to the above problems, in June 1977, the decision was made to revise and address the commercial law for medium-sized stores that were not subject to adjustment under the Large Store Law. If small and medium-sized retailer groups judged that they might be adversely affected by the opening of large-scale retail stores, they could now seek adjustment from their prefectural governor. The governor could issue recommendations to the large company seeking to open a store, and could also issue orders if it did not comply with the recommendations.

The Retail Law was a framework targeting markets, but in October 1976 it was interpreted by the Diet to include supermarkets and shopping centers. However, because the Retail Law targeted the specially designated cities, regulation applied only to cases in those cities. The regulation therefore did not treat all cases equally, and on the occasion of the 1978 revision, supermarkets and shopping centers were excluded from the Law. The Retail Law framework was limited in this sense, and policy in the late 1970s was forced to look to an eventual revision of the Large-Scale Retail Law.

The Retail Issue Group, established in July 1977 as a private advisory body to the Director General of the Industrial Policy Bureau and the Director General of the Small and Medium Enterprise (SME) Agency released the “Retail problem discussion report” in February 1978. The SME Policy-Making Council issued its opinions and recommendations in April, brought the Large-Scale Retail Law and the Retail Law in line with each other, and urged reconsideration of issues such as floor-space area and which matters would be subject to coordination.

In response to this statement of opinion and recommendation, a partial amendment plan for the Large-Scale Retail Law and Retail Law was submitted in June 1978 and came into effect the following May (Ishihara 2011, p. 58). The main points of the revision were as follows. First, the minimum floor area to be covered by the Law was lowered. Stores of over 1,500 m² (or 3,000 in government-designated special cities) became Type 1 Large-Scale Retailers. Stores of between 500 and 1,500 m² were designated Type 2 Large-Scale Retailers and subject to coordination, and coordinating authority over these Type 2 stores was delegated to municipalities. Moreover, the coordination period was extended, and what had been informal commercial coordination and pre-qualification consultations became institutionalized and built into the regular procedures through a system of notifications. Pre-qualification consultations were thereby positioned as having a role in enabling the smooth progress of the Commercial Activities Coordinating Committee.

However, problems recurred in the actual operation process of this cooperative framework. A preliminary briefing session was held before the pre-qualification Commercial Activities Coordinating Committee, and it became virtually essential to obtain local approval at this stage. Some municipalities began to require agreement at preliminary briefing sessions, and the same problems arose as had occurred before the revision of the Large-Scale Retail Law. It transpired that where agreement was not reached at this stage, subsequent coordination would be delayed or faced difficulty. This revealed the problem of the preliminary briefing session. More important, the preliminary explanatory meeting, which began to play the role of de facto coordination, was the venue for agreement between the applicants for store openings and the local small and medium-sized retailers. Therefore it gradually came to light that the interest of the consumer, who was the actual responsibility of the Commercial Activities Coordinating Committee, might well be hardly reflected at all.

After the revised law came into effect, opposition against the opening of stores began to gain momentum. In response, MITI showed plans for addressing the problem in 1981 and entrusted discussion of the issue to the Council on the Large-Store Problem. The Council’s final report announced in January 1982 sought first of all to enforce the law in a restrained manner while continuing to consider consumer interests. It also said that it was necessary to strengthen the functions of the Commercial Activities Coordinating Committee and to devise fair and appropriate deliberation and management of it. MITI handled the administrative regulation of the store-opening process in line with these policies.

However, the opposition movement against store openings quickly made the government aware that coordination through these policies would be difficult. Therefore, in October 1982, the Industrial Structure Council Distribution Committee and the SME Policy-Making Council’s Distribution Subcommittee met jointly, releasing their report in December 1983 titled “The basic direction of the distribution industry and policy in the 1980s.” The report stressed that whereas the basic policy to this point had been to modernize distribution, treating distribution as an economic system and seeking “economic efficiency,” it was instead necessary to see it from the point of view of a social system and to pursue “social effectiveness” as well. It was hoped that business opportunities for small and medium-sized retailers would continue to be guaranteed under the retail-industry coordination process. The MITI Minister’s Ordinance of 1984 likewise urged that the restrictions on store openings be maintained while considering the possibility that opening a store in an existing commercial area might enhance the appeal of the area. In other words, it began to foster an objective reexamination not only of the confrontation between large-scale and small/medium-sized retailers, but also of the impact that large-scale retailers might have on a district.

5.2.3 Approaches to Modernizing Distribution

Initiatives for modernizing distribution were based on the Small and Medium Enterprise Modernization Promotion Law, which was enacted in March 1963 with the expectation of improving productivity not only in manufacturing but in distribution as well. It was assumed that the distribution sector’s productivity could be improved by rationalizing management, enabling companies to operate on a more optimal scale, and creating joint operations among businesses. The focus on distribution arose at this time because the delay in that area was regarded as one reason for rising prices and also because the aging of commercial centers in existing urban areas was causing land-use and congestion issues in dense urban areas (Ishihara 2011, p. 149).

Most important among these was the impact of distribution on prices. The Industrial Structure Council’s Distribution Committee issued successive reports on the subject, beginning with its first interim report, “The current status and issues of distribution organizations” (December 1964). The sixth interim report, “Issues in and the future of the modernization of distribution” (August 1968), stated that the modernization of underdeveloped sectors continued to be important for sustaining growth, and that for the foreseeable future, the principal issues were capital liberalization to create a system that could compete with foreign capital and improvements in distribution productivity as the most powerful approach to the consumer price problem.

In a similar vein, the third interim report, “On turning retail stores into chains” (September 1965), pointed to the effectiveness of the voluntary chain for overcoming the problems of small scale in the retail industry. In “On the distribution activities system” (July 1969), the Subcommittee on Distribution Policy issued a proposal that treated distribution as a single system and stressed plans to upgrade the distribution system as a whole and to improve its productivity. This was because the basic structure of the system was defined as management within the company of (1) operations planning, (2) transactions, (3) physical distribution, (4) finances and financing, and so on. Creating links among companies enabling them to connect with one another would require standardization of product codes and transaction codes, various records and forms, and product packaging. In response, the Committee for Developing the Distribution System was established in September 1970, and in that fiscal year, budget measures were adopted for the basic surveys on the standardization of sales slips, and the Japan Development Bank began financing products related to the distribution system. The Committee began to explore ways to make maximum use of computers in distribution and in September 1971 compiled the Basic Policy on the Distribution System, a set of plans targeted for implementation by 1975.

In addition, the “Distribution in the 1970s” report compiled by the Industrial Structure Council’s Distribution Committee in July 1971 followed on these policy priorities and sought (1) an upgrading of the market structure (pursuit of economies of scale), (2) maintenance and promotion of effective competition (optimization of transaction conditions and customs), (3) promotion of consumer interests, and (4) rationalization of the physical aspects of distribution, and so on (Ishihara 2011, p. 172).

Measures were also taken to address the urban problems related to distribution. These mainly concerned the wholesale industry because of the concentration of wholesalers in urban areas. In December 1965, the Distribution Committee of the Industrial Structure Council proposed the construction of “general wholesale centers,” facilities where wholesalers could not only share shop-fronts, but also the receipt, dispatch, shipment, storage, and delivery of merchandise. This was followed in 1966 by the enactment of the Law Concerning the Improvement of Urban Distribution Centers, which designated certain areas as distribution business districts and complexes and made it possible to construct truck terminals, freight rail stations, wholesale markets, warehouses, and other facilities within those areas. As of March 2010, the policy of concentrating and relocating distribution businesses had led to the operation of such complexes in 18 cities and 27 districts (Table 15).

Table 15 Number of wholesale associations and complexes established

Furthermore, instead of regulating supermarket businesses, MITI sought to work with city planning in response to the City Planning Law in 1968 and the Urban Renewal Law in 1969, which treated retailers as urban facilities. This led to “regional planning for the modernization of commercial businesses” in the 1970s (Ishihara 2011, p. 182). This planning was at first delegated to the Japan Chamber of Commerce and Industry (JCCI) by the Small and Medium Business Administration Agency and then in FY 1984 was turned into a government-subsidized project. From FY 1991, it was taken over by the Project for Planning and Implementing the Revitalization of Shopping Streets and funded by the operating gains of the Small Commercial Business Revitalization Fund. Plans were formulated for 241 districts over a period of 21 years.

5.2.4 Policies to Promote Small and Medium-Sized Retail Businesses

The Law on the Promotion of Small and Medium Retail Business (“Small Retail Law”) was established in September 1973 with the aim of improving shopping districts, and was aimed at developing shopping districts, creating joint store areas, and modernizing business practices. The Minister heard the views of the Small and Medium Enterprise Modernization Council, on the basis of which he established guidelines for the development of projects with policy support (Ishihara 2011, p. 187). The promotion guidelines aimed to secure consumer interests and modernize small and medium-sized retailers, and in the case of subsidized businesses, included improvement projects such as establishing arcades as part of the station-front infrastructure sought in regional commercial modernization plans.

The Distribution Systems Research Institute was established at the Distribution Economics Institute of Japan to serve as the parent organization for developing the measures related to the September 1971 Basic Policy on Distribution System Development discussed above. The center’s aim was the modernization of distribution activities through the development and dissemination of systems related to distribution, and it has since then played a central role in promoting systematization. Meanwhile, MITI entrusted the Japanese Chamber of Commerce and Industry with the task of standardizing sales slips for department stores in 1974, for chain stores in 1976, and for other kinds of wholesale transactions in 1977. In 1978, an initiative aimed at standardizing the common product code was launched. The number 49 became the international code for Japan when Japan joined the European Article Number Association. The shift from the use of magnetic tape to communications lines for the delivery of data on intercompany transactions followed, and in 1980 the Japan Chain Stores Association standardized the process with the JCA Protocol. In 1982, MITI established the so-called “J-procedure,” a transmission control procedure that would be common to the entire distribution industry. This encouraged significant progress in the accuracy and efficiency of distribution transactions.

The Distribution Systems Research Institute mentioned above also played a role in promoting the development of point of sale (POS) systems. JAN (Japanese Article Number) codes were assigned and registered for products, and JAN company code registration was launched as well. In addition, the symbols for displaying JAN codes on barcodes were included in the Japanese Industrial Standards, and it became possible to introduce the POS system. POS experiments were conducted at stores from 1979 to 1980, and the experiments entrusted to the Institute took place in three stages. Following a similar process of trial and error, Seven-Eleven Japan Co., Ltd. introduced the POS system to all stores in 1982, and Ito-Yokado Co., Ltd. followed in 1985, at which point the use of POS systems at convenience stores and supermarkets had become the decisive trend. In 1986, the Small and Medium Enterprise Agency conducted a “POS feasibility study for shopping streets” and began focusing on spreading POS systems to small and medium-sized retailers. The use of point cards in shopping streets also progressed.

With these advances in product management, companies were ready to begin exchanging information via computers, and EDI (Electronic Data Interchange) became possible. The spread of POS and EDI greatly changed commercial transactions. Inventory management, rather than something intuitively based on experience, became based on the objective rendering of the saleability or lack thereof of a given product. This allowed for smaller orders and delivery units, and more frequent deliveries, and also encouraged joint deliveries and the integration of distribution functions. Joint deliveries had already been started by Seven-Eleven in 1976, were adopted by Ito-Yokado in 1985, and spread from there to the general supermarket sector.

5.2.5 Revision of the Law to Promote the Modernization of Small and Medium-Sized Enterprises

Post-WWII policy on small and medium-sized enterprises was based on the Basic Law on Small and Medium-Sized Enterprises, and aimed to realize “improvements in SME growth” and “a rise in the economic and social status of SME workers,” by “rectifying the disadvantages that were due to [their] economic and social constraints.” It developed policies in the following four categories: (1) advancing the structure of SMEs (including modernizing facilities, making technical upgrades, rationalizing business management, and optimizing the scale of enterprises; (2) rectifying negative business activities (preventing excessive competition, optimizing subcontracting transactions, and so on); (3) implementing measures for small-scale enterprises; and (4) implementing financing and taxation systems.

The SME Council presented a summary of “The state of SMEs in the 1970s and the direction for SME policy” (the 1970s Vision of SME Policy) in August 1972, and regarding the 1970s as “an era of change and fluidity,” it suggested new policy directions. The changes cited were (1) internationalization, (2) the growing importance of respect for all members of society, (3) the deepening of environmental problems, and (4) the shift to knowledge-intensive industry. The Council’s suggestions called for greater emphasis to be placed on “the demand side,” “the environment and labor welfare” (in other words, quality of life), and “SME diversity” (Nakata 2013, p. 17). However, in response to the yen’s appreciation, the oil crisis, and other dramatic changes in the business environment that began around that time, Emergency Measures for SMEs in Response to the Changes in the International Currency Situation were issued in March 1973, and Comprehensive Measures for the Economy and Emergency Measures for SMEs Regarding the Yen’s Appreciation (January 1978) were adopted by Cabinet Decision in September 1977 and January 1978 respectively, and policy began promoting shifts in business type and sectoral adjustments.

In line with these policies, the SME Modernization Promotion Law was amended in 1975, introducing three new points of view (Nakata 2013, p. 174). First, it added the perspective of “improving the quality and stability of the people’s lives” to the earlier aim of strengthening international competitiveness. Second, it sought to include social needs such as improving the welfare of workers, raising consumer benefits, preserving the environment, and so on. Third, it encouraged entry into new fields. This enabled policy to promote industry-wide (including upstream and downstream operations) and region-wide structural improvements.

Specifically, the competent minister formulated a modernization plan for each “Designated Industry” based on a survey of its actual situation. The modernization plan included three areas: (1) time-specific targets for modernization of product performance or quality, as well as production costs, and so on; (2) items necessary for achieving the goal of modernization, including development of new products or new technologies, modernization of facilities, optimization of business scale and/or production and management methods, normalization of competition or improvements in business relations; and (3) important items for consideration in the modernization process, including improvements in worker welfare, the advancement of consumer interests, and preservation of the environment. These plans served as the foundation for measures to support SMEs until the Law’s abolition in 1999.

5.3 A New Emphasis on Quality of Life: Promotion of Consumer Protection and the Housing Industry

5.3.1 Vision of the Household Goods Industry

In 1968, the Industrial Structure Council’s Committee on Miscellaneous Goods and Housing Materials issued a report titled “The future of the miscellaneous goods industry under a liberalized economic system” that emphasized the “export character” of the industry, and laid out the direction to be taken in order to overcome the various challenges of the existing situation (Matsushima 2012, p. 204). On the production side were mechanization and mass production in order to enable the industry to escape its labor-intensive character, and efforts were to be made toward product differentiation. On the distribution side was promotion of modern linkages between production and sales and rationalized marketing systems; management would be modernized. The sector was divided into categories according to the level of mechanization and product differentiation that had been achieved, and policies were considered to address the needs of each one.

In March 1976, the “Vision of the household goods industry from 1975 and the appropriate direction of response” (the interim report of the Industrial Structure Council’s Household Goods Committee) changed the name of the industry in question from “miscellaneous goods industry” to “household goods industry” and at the same time shifted the related policy-making aim from promoting exports to promoting enrichment of the life of the people. Based on this change in orientation, the following were cited as challenges facing the household goods industry: (1) stable growth and qualitative changes in people’s needs (requiring upgrading, higher performance, individualization and the greater demands for social responsibility); (2) the question of how to respond to environmental changes, namely, the steady advance of international specialization or the rapid growth of developing economies. Overcoming these challenges would fundamentally require relying on self-help, complemented where needed by government measures.

The policy issues for the household goods industry, leaving aside those of specific industries such as Western-style kitchen metal-ware, porcelain, and matches, were modernization and structural improvement and the elimination of excessive competition. The policy measures corresponding to the first of these were the 1963 SME Modernization Promotion Law, based on the 1960 Law on Extraordinary Measures for Sector-Oriented Promotion, the creation of the Structural Improvement Planning System based on the 1969s SME Modernization Promotion Law, and following these, the advancement of plans for knowledge-intensive industries and structural improvement planning by region (1973), the creation of a system for planning entry into new sectors (1975), and the introduction of structural improvement plans for business strategy (1984) and post-structural improvement plans (1992).

Regarding excessive competition, the following frameworks remained in place: the Law on Temporary Measures Concerning the Stabilization of Designated SMEs (1952), the Small Enterprises Stabilization Law (1953), and the Law Concerning the Organization of SMEs (1957).

Structural improvement projects were implemented using not only the SME Modernization and Promotion Law but also the July 1979 Law on Extraordinary Measures for Regional SMEs (“Production Region Law”). The “Production Region Law” framework was adopted to implement structural improvement projects. The framework of the Production Region Law was such that associations in the production region would undertake research and development for new products or new techniques, the development of demand, and plans for the promotion of projects for human resource development, and these would be submitted to the prefectural government and, if approved, could receive subsidies. The range of MITI’s involvement was therefore limited: the framework relied heavily on the cooperation of industrial associations. Responsibility for policy management was shifted from the department of goods affairs to the prefectural governor.

5.3.2 Establishing a Consumer-Oriented System

Following the 1968 establishment of the Fundamental Law on Consumer Protection, related ministries and agencies decided to expand the administration of consumer affairs by increasing the budget for it. MITI established the Consumer Protection Division in 1976, and built up its administration of the area, including through legislative means (Ishihara 2011, p. 326). These included making administrative responses more consumer oriented. In 1965, MITI launched a system for handling complaints related to consumer lifestyle improvement in 1965, setting up a consultation window for people with complaints. The National Consumer Affairs Center of Japan was established in 1970. By 1973, at least one Consumer Life Center had been established in each prefecture, and systems for consumer consultations and complaints were being put into place.

The sharing of the collected information and collaboration among organizations was encouraged, and a network system linking centers for consumer life was established at the 16th Consumer Protection Conference in November 1983. (The Conference was established based on the Basic Law on Consumer Protection, chaired by the Prime Minister, and with the membership of the heads of the relevant administrative units, was charged with determining basic policy related to consumer administration). This resulted in the establishment of the Practical Living Information Online Network (PIO-NET) in December 1987. Meanwhile, MITI also sought improvements in industries’ systems for handling complaints. In 1967 and 1968, it offered guidance through industry associations on the establishment of “complaint windows.” With the prospect of an increasing number of complaints from consumers, it issued a notice in August 1979 urging the further development of a consumer-oriented system and industry understanding of the need for it.

5.3.3 Optimizing Business Transactions

Policies were developed on door-to-door sales and installment sales, from the point of view of optimizing business transactions (Ishihara 2011, p. 360).

First, the Special Subcommittee on Sales, in the Industrial Structure Councils’ Distribution Committee, reviewed special business operations that were on the rise, including door-to-door sales, mail-order marketing, chain stores, and multilevel marketing systems, and in March 1975 submitted a report urging legislation on this area. On the basis of this report, the Law Concerning Door-to-Door Sales was established in June 1976 with the twin aims of promoting fair business practices and preventing damage or loss to consumers. The Law, in keeping with the particular needs of each kind of sales practice, obliged sellers to disclose their name and the type of merchandise being sold and also introduced a “cooling-off system.” MITI also organized sales associations to establish the foundations for the sound development of these new sales methods, including, for example, the Door-to-Door Sales Association (established in March 1979) and the Japan Direct Sales Association (established in April 1980), and provided them with administrative guidance.

Consumer issues were mounting, however. In the case of door-to-door sales, consumers who were uncertain or vacillating could not avoid making contracts. The law on door-to–door sales was revised in June 1984, and the cooling-off period was extended from four to seven days. The affected businesses that had initially resisted the idea also changed their view of the matter, learning to provide products that consumers would not choose to return and concluding that their own credibility increased when their sales methods improved. In May 1985, MITI launched an information system on problems in door-to-door sales and worked to prevent the occurrence of such problems by widely disseminating the content of the consultations to the general public and related government offices.

6 Friction with Foreign Countries

6.1 Trade Imbalances and Negotiations with Europe and America

6.1.1 US Criticism of Japan

Japan’s trade surplus with the US reached about 10 billion dollars in 1978 and continued to increase thereafter, to about 60 billion dollars in 1987. Although somewhat sluggish in the first half of the 1990s, it again increased to 64 billion dollars in 1998, 73 billion dollars in 1999, and 81 billion dollars in 2000. However, since the EU and China surpluses with the US were growing at the same time, the situation was different than it had been in the 1980s. The US portion of Japan’s total exports rose from less than 26% at the end of the 1970s to 35% in 1984 and remained around 30% in the 1990s. Meanwhile, the US ratio of Japan’s total imports remained at about 20% from around the 1980s, rising at most to 24% in 1998.

Against this backdrop, US criticism of Japan had been mounting since 1977, particularly in the US Congress, because imports from Japan were increasing dramatically despite the appreciation of the yen (Abe 2013, p. 53). The January 1979 report by the Jones Task Force on US-Japan Trade (US House of Representatives Ways and Means Committee, Subcommittee on Trade) strongly criticized Japan for being the only country with an excessive trade surplus at a time when most countries were suffering from recession, and asked for efforts to be made to open Japan’s market and improve the trade balance. The US also established the Trade Agreements Act of 1979, which detailed the requirements for the Laws on Countervailing Duties and Anti-Dumping.

Meanwhile, the Japan–US Summit meeting in May 1979 issued a joint statement with the subtitle, “A fertile partnership looking to the 1980s.” Japan was called upon to maintain economic growth through the expansion of domestic demand and open its market to foreign products. The US would restrict imports if Japan’s exports soared too rapidly, and Japan would resolve the issue by voluntarily regulating its own exports. These approaches were maintained into the 1980s.

6.1.2 Full-Scale Trade Friction with Europe

Trade friction also arose between Japan and the members of the European Community (EC), beginning around 1970 (Abe 2013, p. 147). In 1971, Europe, like the United States, was suffering from the rapid increase in steel imports from Japan, and in January 1972, Japan adopted Voluntary Export Restraints (VER) through the Export and Import Transaction Law. These voluntary regulations were renewed repeatedly, continuing in place until the 1990s. In addition to iron and steel, tape recorders and televisions became the target of VERs on exports to Europe from the early 1970s on. This was part of the Japanese government’s effort to maintain the international export order during this time.

However, in 1976, immediately after the first oil crisis, the EC became concerned by the flood of exports from Japan—specific items such as steel, autos, ships, and bearings. When a delegation from Japan’s Federation of Economic Organizations visited Europe in October of that year, the Europeans harshly criticized the influx of Japanese products. They argued that non-tariff barriers (specifically the technical obstacles to manufactured imports posed by regulations on exhaust gas, the testing process for pharmaceuticals and chemicals, and so on) were hindering the export of European products to Japan and demanded improvement on the part of the Japanese. While the trade friction between Japan and the EC intensified in this way, the value of Japanese exports to the EC came to twice that of the EC’s exports to Japan and Japan posted a trade surplus with Europe exceeding 3 billion dollars.

As a result of the delegation’s request upon its return home, government-level discussions were held between the EC Committee and the Ministry of Foreign Affairs in November 1976. The same month, the Japanese government submitted responses to the EC complaints, including (1) restraints on the number of automobile shipments, (2) the launching of discussions on the shipbuilding issues, and (3) the importation of agricultural products such as powdered skim milk. The EC reacted with appreciation. Japan also sought to improve areas regarded as non-tariff barriers by omitting the double inspections and certifications. Nevertheless, in February 1977 the EC Committee took steps against the import of Japanese-made ball bearings by unexpectedly imposing an anti-dumping tax of 10–20% for up to three months, making it clear that the EC’s approach of sanctions against Japanese products was not brought entirely to an end.

6.2 Simplifying Import Procedures and Maintaining the Export Order

6.2.1 Efforts to Expand Imports

Import promotion policies sought to increase imports not only by developing markets for the sake of leveling the field of competition but also by promoting the penetration of imported goods and supporting import expansion policies. They also sought market-opening policies, including the easing of import regulations, reduction of tariff rates, and the improvement of standards and conformity assessment systems.

The import expansion policies were developed against the background of the late-1960s trade friction with the US and the early-1970s friction with Europe, and the 1971 Comprehensive Economic Policy of Japan marked the first clarification of import promotion policies (Abe 2013, p. 175). Thereafter, export promotion policies, which had been the focus during the period of high economic growth, were transformed into import-promotion measures of a kind not seen in other countries overseas, and energetically advanced until the beginning of the twenty-first century.

The effort put into expanding imports from the latter 1970s resulted in a policy system as of the fall of 1982. The memorandum submitted by the general assembly of the Trade Conference that October was the first comprehensive and detailed description of the system of import promotion policy, and it was carried on and developed in subsequent measures. It urged the need to encourage import expansion through the use of JETRO (the Japan External Trade Organization) and MIPRO (Manufactured Imports Promotion Organization). Events and import fairs were pursued thereafter, with due consideration for the concerns of the Trade Conference.

6.2.2 Exploring Market-Opening Policies

Among the import-promotion policies were policies to open the market (Abe 2013, p. 226). The core of these policies was the relaxation of restrictions on imports, because of the trade friction discussed above. The trade friction of the latter 1970s forward was new in that macroeconomic economic policies and adjustment of exchange rates now became diplomatic issues with the aim of resolving the imbalance of the current account. There is no clear standard on how much of an imbalance causes problems, but structurally speaking, current account imbalances arise because the countries with surpluses continuously achieve levels of industrial development that surpass their domestic demand, while deficit countries continue simply to open their markets to foreign goods, raising the possibility that their industrial development will stall as a result. It was from this point of view that Europe and America called on Japan to increase its domestic demand and open its market from the late 1970s into the 1990s.

Interestingly, the Japanese side was clearly aware of the existence of an array of obstacles relating to importing, even as it passively responded to the external pressures by undertaking market-opening measures. Although Japan’s policies did not necessarily result in import expansion, the process became an opportunity to shed light on problems that had been hidden from sight within Japan. Industry circles, including the Federation of Economic Organizations and others, while strongly resisting criticism of industry and business, sought the relaxation of government regulations and hoped to increase their own freedom as corporate actors thereby.

The Japan–US bilateral current account was made an issue in the negotiations between the two countries, although it has meaning only when there are strong restrictions on the exchangeability of currency. The reason was that the US could not deny that the background to the problems was the emotional reaction that arose from the trade friction in specific, but its complaint was that although Japan had grown to become the world’s second-largest economy, it did not have a fully open market. Japan, meanwhile, promoted import expansion and market opening, but the problem of the current account imbalance was not easily resolved even in the twenty-first century. To that extent, the measures undertaken by Japan cannot necessarily be regarded as having achieved sufficient results.

In relation to the EC, meanwhile, Japan started government-level negotiations in mid-November 1976 and from time to time attempted to relax import restrictions and voluntarily regulate exports, but these were undeniably ad hoc responses. This was because MITI, as of 1976–1977, was strongly aware that the Japanese market was already fully open in systemic terms.

There were, however, cases in which domestic safety regulations in effect proved disadvantageous for imported goods, and MITI did not go this far into detail in its deliberations. In the view of MITI in those years, the criticism from Europe and the US was fundamentally based on a misunderstanding of the Japanese market. MITI’s policies, therefore, were developed basically as attempts somehow to avoid trade sanctions.

6.2.3 Simplifying Import Procedures

Overseas complaints against Japan’s import system persisted, and MITI’s attitude gradually changed. The change was reflected in the Japanese government’s more aggressive promotion of the Tokyo Round.

The New Policy issued in 1979 by the International Trade Policy Bureau and the International Trade Administration Bureau said that, “For the sake of upgrading and improving the efficiency of our own economy, we should not refuse to expand imports,” and called for “Eliminating factors that impede the expansion of imports.” Inhibiting factors included various inspection procedures, the closed nature of Japanese industry, the practice of cross-shareholding within a conglomeration of businesses, the areas in which distribution was not modernized, and other factors. MITI’s stance of simply trying to overcome overseas misunderstandings shifted slightly, and instead of avoiding a response to the current account imbalance, it began advancing import-promotion policies and coordination within domestic industry in order to achieve an equilibrium. In other words, it began firmly pursuing efforts to raise industry to a still more sophisticated level.

An array of programs for promoting imports to Japan were presented in senior official-level consultations between the US and Japan in September 1977. A Trade Facilitation Committee (TFC) was inaugurated to handle problems with trade procedures and to seek out what might be promising US products for export to Japan. The TFC also became the organization charged with fully responding, for the first time, to the complaints made about trade.

The latter 1970s also saw the step-by-step progress on the simplification of import procedures. The first step was the 1977–1978 implementation of a partial revision of the Import Trade Control Order. Among the revisions was that made to Article 21 in October 1977: trade contracts with intermediaries, instead of requiring permits from the MITI Minister as they had previously, now required the submission of notifications to the Foreign Exchange Bank, and where the payments and price of cargo received were both under one million yen, the notification requirement was lifted. The Export Trade Control Order was also revised in October 1978, furthering the simplification of procedures for handling cargo exports and imports. Because this series of amendments to protectionist measures targeted regulations what in reality were hardly implemented, they could not be expected to have a significant effect on import expansion. Nevertheless, they did have meaning in that they allowed Japan to assert that it was opening its market.

6.2.4 Policies for Maintaining the Export Order

The basic thinking of policies concerning foreign trade in postwar Japan was that goods in principle be exported freely, with controls on exports limited to the necessary minimum. The December 1949 Foreign Exchange and Foreign Trade Control Law (“Foreign Exchange Act”) adhered to this thinking, restricting the scope of control on exports. Even so, the Foreign Exchange Act was partially revised in December 1980, against a backdrop of rising Japanese exports, to allow for even freer export trade, and revisions were made to a wide array of ministerial ordinances (Abe 2013, p. 301). As a result, although approval would still be required for specifically designated exports and imports, “consignment trade in processed goods” was in principle liberalized, for example. “Payment method regulations” were also changed from the “positive list” method to the “negative list method”: that is, where payment methods had previously had to be positively singled out as not requiring approval, under the new system, only those payment methods specifically designated as requiring approval would be subject to controls. However, on the occasion of the Toshiba–Kongsberg scandal, the Foreign Exchange Act was again revised in September 1987 to strengthen export controls on strategic goods to communist countries. Nonetheless, MITI decided to establish the Bulk License System in March 1989, and was promoting the simplification of procedures for bulk export licenses exceeding 200,000 annually.

The 1952 Export and Import Transaction Law aimed to prevent unfair export transactions and to establish an order for import and export transactions (for example, eliminating excessive competition), and to this end, recognized the establishment of export associations and of agreements among businesses. When the law was first enacted, the question was how to deal with problems that occurred in the main exporting sectors, which were composed of relatively small-scale companies producing textiles, miscellaneous goods, light machinery, and so on. Many export agreements were still being signed in the 1970s, the majority of which were agreements on quantity or volume of exports.