Crisis & Reconversion by JIRO FUJIWARA economic slump. 3. Competition by manufactured goods from Southeast Asian countries increased in the shrinking world market. 4. The prices of petroleum and other mineral resources rose. Previously, the low prices of these commodities had guaranteed rapid growth based on expansion of Japan's heavy industry, especially the chemical industry. As for the changed internal conditions: 1. There was a slump in demand for durable consumer goods, most importantly home appliances and passenger cars. In other words, the domestic market contracted. 2. There was increased pressure from demands raised by workers during the period of rapid growth and a consequent tendency of labor costs to rise. 3. There were problems of pollution and a shortage of new industrial sites. Urban overcrowding and the extreme inadequacy of social spending led to lower efficiency and rising costs (increasing congestion of public transportation systems, rising transportation costs, etc.). Under the combined effects of the collapse of the conditions that had characterized the preceding period, this recession was to exhibit a pattern completely different from that of previous slumps.
Course of the 1974-75 recession In contrast to previous recessions, whose onset was marked by a reduction in investment in inventories, this one began with a drop in the final demand. Especially pronounced were the decreases in individual consumption - of durable consumer goods, etc. - and in investment in private housing. In the early stages of previous recessions, while investment in inventories and equipment declined, final demand continued to rise, sustaining the economy. This time, however, the recession began with a drop in final demand and the adjustment of inventories came later. Hence, throughout the first half of 1974, mining and manufacturing production rose relative to the real GNP, as did corporate inventory levels. This decline in individual consumption was largely due to two factors. One was a cyclical slump in demand for those durable consumer goods - mainly private automobiles and home electrical appliances - which had led the rise in private consumption. The second factor was a sharp decline in real income, caused by the extraordinary inflation. But while individual consumer spending continued to stagnate, the adjustment of inventories really began only in autumn 1974. The recession was thus prolonged and deepened because of its two-stage course of development. The sudden drop in mining and manufacturing production in autumn 1974 had a particularly strong effect. While the production index had fallen 4.0% in the five-month period from April to August 1974, it dropped 12% in the following five months. It was also after September 1974 that the ratio of job openings to job applicants dropped drastically and unemployment rose rapidly. Characteristics of the 1974-75 recession The 1974-75 recession was deepened by the contradictions of the preceding period of inflation. Its course of development revealed the collapse of the rapid-growthoriented economy. While this recession began with a steep decrease in individual consumer spending and was somewhat prolonged due to anticipation of inflation, the drop in production was especially protracted, extending over a period of unprecedented duration. And when cutbacks in production began to spread in anticipation of the end of the inflation boom, it became clear that this was accompanied by an unprecedented fall in the rate of profit. It is well known that in the recessions between 1963 and 1975 there was a consistent trend: during a recession, the rate of profit would fall to a low point which was in each case lower than in the preceding recession. But even in comparison to that trend, the decline in profits during the 1974-75 recession was truly drastic, spreading to nearly all major sectors of manufacturing industry. On the whole, the manufacturing industries, whose profits began declining in the first half of 1974, recorded an unprecedented drop of 6.8% in the second half of that year. The result, as we shall see, was to bring on a long-term decline in private investment in equipment, causing individual spending to become sluggish and delaying economic recovery. Thus, in essence the recession clearly represents a fundamental crisis of overproduction, as expressed in the overproduction, was dragged into an even more critical production slump during the recession. This was because the recession came on the heels of the 1972-73 inflation boom, during which the decline in the rate of profit was covered by price rises, concealing the underlying crisis and extending the boom. In fact, this recession was the result of attempts to rapidly eliminate malignant inflation by making working people sacrifice. Both inflation and recession are inescapable contradictions originating in the capitalist form of the economy. They are attacks of capitalism on the verge of a crisis. trying to prolong itself by making working people suffer the effects of its own contradictions. In 1974, under the pressure of a declining rate of profit, the capitalists quickly drove down production in order to prevent a collapse of their profits. This action was different from those taken during previous periods of recession. Japanese corporations have always financed large-scale investments by borrowing capital from outside sources. Hence, they are structured in such a way that their break-even point between profit and loss is quite high. If they cut production, their "fixed cost" per unit of production increases, raising overall costs. Consequently, in previous recessions, corporations generally reacted by overproducing and "stocking up" before cutting production. This time, however, under conditions of extraordinary inflation, the actual burden of interest on debts declined, as did the cost of amortization of equipment. From the capitalists' point of view, the result was that even if production were reduced, the ratio of fixed costs in proportion to the volume of production would not rise. On the contrary, because of the drastic rise in the prices of raw materials - whose cost is proportional to the volume of production - the more corporations produced the worse their profits became, unless they raised the prices of manufactured goods. Consequently the capitalists responded with further serious production cutbacks in order to halt the deterioration of their profits. And along with this we must note the fact that with the shift toward recession at the beginning of 1974, speculative investment in inventories, which had been carried out during the inflationary period, inevitably forced unnecessarily drastic production cutbacks. This could be seen in such market-sensitive industries as textiles, paper, etc. The production cutbacks in the manufacturing industries were carried out with the aim of preventing a decline in prices. At the root of these practices is the developing monopoly structure.
29
JAPAN Thus, under these recession conditions, the capitalists reacted by attempting to attack working people, making them suffer the contradictions of the period of inflation. At first, the spreading production cuts were accompanied by many forms of "employment adjustment" on an unprecedented scale. This "employment adjustment" began with "restrictions on overtime, " and employment cutbacks or "hiring freezes" in seasonal industries. Next came "suspensions of contract renewal" of temporary employees, and then "reassignments with transfer" in the major corporations. In late 1974 and early 1975 there were "notices of anticipated work force retrenchment" and "notices of dismissal" even in the major corporations. It should be noted that this manner of "adjusting employment" is required by the characteristic stratified employment structure (the discriminatory systablished over the years. There is another characteristic of this recession that should be pointed out: the difference in the influence or effectiveness of economic regulation policies. In Japan, the process of economic regulation by the state has up to now revolved around monetary policies. This took the form of putting a break on corporate investment activity by using monetary tightening to create a shortage of capital. Monetary policy, along with drastic reductions in fiscal expenditures, occupied a very important place in the government's policy of "restraint of overall demand, " which aimed at stopping the inflation. But a salient feature of the 1974-75 recession was the slowness with which the results of monetary tightening spread throughout the economy. The "restraint of overall demand" policy had already brought about a rise in the reserve ratio by January 1973. Yet the policy was strengthened in the form of five raises of the official bank rate between April and December 1973. Such a rapid rise of 4.75% was a completely extraordinary precedent. Nevertheless, it took almost two years for the effect to spread throughout the economy. The problem lies in the overall change in the pattern of international and Japanese economic growth on which these policies were based. In particular, the effectiveness of monetary policies employed in the past has been undermined by these changed conditions, which include changes in corporate financial structure and in the struc ture of capital accumulation. We shall take up this point in more detail below. Characteristics of the process of recovery The recession which began in the first quarter of 1974 was considered to have almost bottomed out one year later. Product inventories in mining and manufacturing, which had continued on an upward trend until then, began to fall in January 1975. In February shipments began to pick up, and production started rising in March. However, the upswing in individual consumer spending was still sluggish, and corporate investment in equipment stagnated. The economic recovery process just plodded along after the recession had bottomed out. 30
This recovery was characterized by extraordinary stagnation in investment in new equipment in the private sector. Of course, final demand remained sluggish in areas such as individual consumer goods, exports, etc., and inventory levels were high. But the main cause of stagnation in investment lay in a dampening of incentives for investment due to the drastic decline in the rate of profit. It was said that "looking at industry as a whole, mid-September (1975) performance reports showed one out of every three listed corporations (on the Tokyo Stock Exchange) still in the red." In fact, the real growth rate was recovering at a certain pace. From the first to the second quarter of 1975, for example, mining and manufacturing production increased more than 4%, and shipments rose 4.6%. Expressed as annual rates of 17% and 20% respectively, these are high compared with the corresponding values in periods of recovery from previous recessions. However, in contrast to this quantitative expansion, the rise in the nominal growth rate was sluggish. This sluggishness was naturally exacerbated by the performance of corporate management, bringing on a drastic decline of financial revenues. Thus, an extremeiy important characteristic of the process of recovery from this recession was the prolonging of economic stagnation due to the sluggish performance of corporate management. This shows how deep was the "financial world's" fear of renewed recession.
In other words, along with the drastic decline in individual consumption, deterioration of corporate earnings, and the sluggishness of private investment, the economy is undergoing a "transition from the leading role of private investment in equipment to the leading role of financing." It is in this context that a crisis of national and local government finances is occurring. Underlying all this is the problem of an overall reorganization of the structures that were built up during the rapid-growth period. These range from pricing mechanisms to the monetary, wage, and employment structures. The shift to what the government and the bourgeoisie call "stable growth" is nothing less than this. Since the beginning of 1975, the bourgeoisie has continued to demand that the government and its policy-making bodies take bold anti-recessionary measures. In this they disagreed with the government, which subordinated "anti-recessionary policies" to "price control policies" and "ending inflation." When the Miki government originally came on the scene in order to rescue the ruling Liberal Democratic party and the bourgeoisie from its crisis in the midst of an explosion of working people's anger over inflation and over the "money power politics" of former Prime Minister Tanaka, Miki donned an "oppositionist" disguise. It was his role to contain the working people's discontent by pretending to make concessions to their demands under the camouflage of an "anti-LDP-mainstream, " midConsequently, Miki's anti-recession policies had to be subordinated to his "stance toward the 1975 shunto" (2) out of fear of working-class militancy, which had been on the rise ever since the "smash marusei" (3) struggle and continuing through the 1974 shunto. Concern over what direction the 1976 shunto might take forced Miki to worry most about the problem of prices. Miki's failure to implement measures of positive eco= nomic recovery flows from these kinds of political responses, from the crisis of bourgeois rule. The Japanese bourgeoisie, in order to preserve or expand its share of the world market, not only had to strengthen the competitive position of its exports, but also had to speed up the shift to "stable growth. " Hence the "financial world" is assuming a blatantly offensive posture toward working people, while demanding bold policies to refloat the economy. These considerations have led the bourgeoisie to step up its attacks, which have included the layoffs at the end of 1974, the 15% guideline clamped on wage demands during the 1975 shunto and the 10% guideline during the 1976 shunto, the campaign to break workers' combativity and impose company unions in small- and medium-sized enterprises in the metal and electrical machinery industries, and the attacks on municipal government employees. These efforts of the bourgeoisie to speed up the shift to "stable growth" have clearly given impetus to the schemes for establishment of stronger state control and more thorough exploitation of working people, and for strengthening of the repressive system. However, the shift to "stable growth" surely cannot be accomplished through a purely economic mechanism. It is a question which must necessarily be settled through fierce class struggles. The bankruptcy of rapid growth and the character of the transition period The collapse of rapid growth and the character of the period of transition to "stable growth" are indicated by the fact that this recession not only was deepened by the accumulated contradictions of the preceding inflation; but also followed a pattern that was entirely ditferent from that of previous recessions. The monetary structure that has supported the rapid growth of Japanese capitalism is based on indirect financing methods and low interest rates. But these two features are completely contradictory in essense. Guaranteeing low interest rates requires a situation in which the banks' excess liquidity is maintained by the selffinancing capacity of corporations. However, in order to continue large-scale investments in a situation in which their self-financing rate is extremely low, Japan's large corporations have used indirect financing methods, and almost all corporations have continued such investments by drawing huge loans (over-borrowing) from city banks. Japan's city banks are thus kept in a chronic state of insufficient liquidity, which naturally tends to create high interest rates. Nevertheless, city banks have been maintaining a policy of low interest rates by overborrowing from the Bank of Japan in order to barely maintain their balance. Conversely, under these forms of indirect financing and low interest policies, up to now it had been possible for the government to exercise extremely sensitive control over corporate investment activity through raising the official bank rate and through transaction rules. The government's economic policies could be implemented easily through carrying out these monetary policy measures. In the recent recession, however, the economic regulatory action of the old monetary policy showed almost no effect. The 1975 Economic White Paper pointed this out. It noted that the reason why Japan's monetary policy had been highly effective up to now was that "current deposits were the main element in the composition of corporate assets, and because of the continuing trend toward surplus investment. ... It was necessary to restore the balance of composition of assets by suppressing the supply of capital in circulation, causing corporations to restrict real investments." But it turned out that since the second half of the 1960s, "the pattern of retention of corporate assets has changed, with an increase in the relative importance of financial assets such as negotiable securities, which act as a buffer between real investments and current deposits.. • Hence, the time lag between restriction of the supply of capital in circula-
31
JAPAN tion and the curtailment of real investments is widening. " The white paper thus pointed to the increase in the overall self-financing capacity of corporations. However, what underlies these sorts of changes is clearly increasingly technology-intensive character of the industrial structure. The transition to this type of technology-intensive, resource-poor industrial structure had already been prepared - and to a certain extent carried through - in the process of growth of heavy industry (especially the chemical industry) which had led the previous rapid economic growth. That is to say, in this process of rapid growth, while the content of that growth continued to be based upon the resource-intensive industries such as steel, petroleum and petro-chemicals, a shift was taking place toward the preponderance of such industries as transportation equipment, machinery, and electrical equipment. This point is reflected very clearly in the composition of exports (broken down by categories). In proportion to total exports, the ratios of steel and chemical products - in addition to textiles and miscellaneous manufactured goods - are gradually declining, while the ratios of machinery, electrical appliances, and transportation equipment, are rising remarkably. Furthermore, this trend has found its reflection in the composition of the labor force in manufacturing industries. Although the number of production workers has been gradually decreasing since 1970, the number of "managerial, office, and technical workers" has risen. In response to the shift toward this kind of industrial structure, the trend toward monopolization has been further accelerated. That is, the industrial character of the major corporations is being completely transformed as they advance into spheres which previously were the realm of small and medium-sized enterprises, such as housing construction and wholesale and retail distribution. Small and medium-sized firms dealing with publishing, advertising, and computers and automation equipment, as well as urban development, have been increasingly driven out of business by large corporations. These are industries in which there is a great deal of overlap, in terms of technology and markets, among firms manufacturing different products. Consequently, there is a strong tendency toward the formation and cohesion of new capital groups. In fact, the formation of new corporate conglomerates in response to the transformation of the industrial structure has been going on ever since around 1968-69. The establishment of conglomerates, with Mitsui, Mitsubishi, and Sumitomo in the lead, has been steadily advancing in the information, housing, urban development, and distribution industries. New corporate groupings have been created through mutual stockholding, often overstepping the 32 bounds of traditional financial cliques or ruling-class families. The second point which must be noted in regard to the change in the financing structure is that a new mechanism of capital procurement was opened up with the collapse of the international monetary system and the shift to fluctuating exchange rates. In place of the "Bank of Japan - central city banks - corporations" route of indirect financing, government capital may flow directly to city banks and corporations. The extra payments into special foreign currency accounts at the time of the "dollar shock" were clearly one such case, one which endowed corporations with tremendous surplus liquidity. Furthermore, the national debt, which is growing rapidly during the present crisis of state monetary policy, and the Bank of Japan's buying and selling operations in the foreign currency exchange market are becoming increasingly important for the spread of investments in the automation and related industries, which accompanies the structural change. This is the real content of the Japanese economy's "shift from the leading role of private corporate investment in equipment to the leading role of financing, " as part of the transition to a condition of "stable growth. it should be noted that the very transformation of the industrial structure that was prepared by the process of high growth has come into conflict with the previous financing structures, pricing mechanisms, and distribution systems, and is creating a new mechanism of capital procurement and new monopolistic price-fixing mechanisms. This represents nothing other than an economic system based on even greater monopolistic control, managed and regulated by the state. The integration of big capital and the state is necessarily being effected ever more openly. The dilemma accompanying the shift to "stable growth" The Socialist party, the Communist party, and the Mindo trade-union bureaucracy (4) hold a completely mistaken view of the shift from former Prime Minister Tanaka's "Plan to Reconstruct the Archipelago" (5) to Miki and Fukuda's policy of "stable economic growth." The bureaucrats see this as a shift toward a welfare economy. But Tanaka's "Plan to Restructure the Archipelago" was not simply an extension of the previous rapid-growth policy. Its content provided for shifting to a technologyintensive, resource-poor industrial structure. It was an industrialization plan that aimed at a shift toward inland, urban-type industries, a shift which included relocation of factories. That is to say, the productive forces of the Japanese economy, formed within the framework of rapid growth, came into conflict with that very framework, reaching a condition of complete saturation in relation to the domestic market. Consequently, the bourgeoisie needs to reorganize the old structures of
profit-making and capital accumulation on a scale surpassing national boundaries. Japanese imperialism, which has always been structured so as to rob the masses most efficiently, will make the transition to a stronger exploitative structure. And that structure will spread beyond national borders in the form of increased imperialist penetration. Tanaka's "Plan to Restructure the Archipelago" had a similar logic. But the tremendous productive forces of the Japanese economy, already overflowing the barriers of national boundaries, cannot be rationally managed except under a centralized planned economy on an international scale. Therefore, Tanaka's "plan, " which sought to transform those productive forces while guaranteeing the same structures and the same high profits as during the 1960s, was smashed by the contradictions of capitalism itself. The economic and social crisis expressed in the extraordinary inflation of 1972-73 and the deep recession of 1974-75, made this fact very clear.
MIKI The demand by the capitalists for a transformation of the industrial structure is also an expression of the contradictions of capitalism that accumulated during the process of rapid growth. These contradictions are many and deep: the existence of a huge working class concentrated in the cities in the course of rapid growth; wage levels which continually rose at a certain rate under conditions of a structurally ingrained labor shortage; the employment structure - axised around the lifetime employment system (6) - which up to now had sustained the rapid growth of Japanese capitalism; the level of consumption and social demands - including among the petty bourgeoisie - which were continually stimulated by the process of rapid growth; the extreme lag in capital investment in social expenditures. All of these factors have now become important bottlenecks for the Japanese bourgeoisie.
The present fiscal crises of the state and of regional and municipal governments are the most extreme expressions of these problems, which have become entirely unbearable for Japanese capitalism as a result of the collapse of rapid growth. "Stable growth" and the bourgeois offensive The government and the bourgeoisie, aiming at this shift to "stable growth" and viewing the present period as a few years of "adjustment, " are going onto an offensive of wage restraint, layoffs and rationalization, and administrative consolidation. The bourgeoisie is clearly trying to develop this offensive on a scale surpassing that of the Dodge Plan. (7) Hence, to follow the reformist line of the SP and CP, counterposing to Tanaka's "restructuring of the archipelago" a transition to "stable growth" with a sugar coating of "social welfare" and demanding "democratic regulation of monopoly capitalism" is to fall into an extremely dangerous trap. While the relationship of class forces today is clearly different from what it was at the time of the Dodge Plan, essentially the same type of offensive is being prepared based on the line of "stable growth. In reality, the transformation of industry that is emerging out of this recession is creating a structure which employs a certain upper layer of workers within the system while cutting off and repressing many lower layers of working people. With the changing structure of laborintensive, large-volume production industries such as textiles, home appliances, and automobiles and the simultaneous spread of technology-intensive, researchoriented industries, an attempt is being made to change the employment structure as a whole. While on the one hand there is a booming demand for young, highly educated and efficient workers, on the other hand older workers, women, and seasonal workers are increasingly swelling the ranks of the chronically under-employed or unemployed. At present, since investment in new equipment is stagnating due to the severe deterioration of corporate earnings and since the economic recovery is dragging out, many corporations are in fact preparing for massive layoffs. In this regard, the "employment adjustments" since last year certainly should not be viewed as a temporary phenomenon accompanying a low point in the business cycle, but must be understood as the beginning of an offensive of structural layoffs. It is clear that the spreading personnel consolidation by major firms will continue during the next two or three years. An example of this was the closing of the spinning division of Tokai Rayon, where all the employees were laid off. Toyobo Corporation (textiles) has called
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JAPAN for the voluntary retirement of 2, 330 employees. It is said that each of the major iron- and steel-producing corporations is projecting personnel consolidation of 1,000 to 2,000 workers over the next two years, with Nippon Steel cutting at least 3,000. Furthermore, Mitsubishi Electric has announced "plans for a reduction of 7,000 positions, corresponding to 12% of our employees, by April 1978 as part of our policy to improve corporate quality in preparation for the shift to a low-growth economy. " Fuji Electrical Machinery has announced plans to reduce its payrolls by 2, 000 workers within two years. In addition to this, faced with financial crises in the public sector, the bourgeoisie is aiming at large-scale layoffs of local government employees and workers of Japan National Railways. The government and the bourgeoisie, having held wage increases in the 1976 shunto below a 10% guideline with the aid of the reformist leaderships of the SP and CP, are scheming to divide the working class. They seek to draw the labor bureaucracy into collusion with the state through the policy of "dialogue and cooperation, "to impose a "Japanese-style incomes policy." On the other hand, faced with a financial crisis, they are pushing for more wage cuts and personnel adjustments by local governments, drastic cuts in social welfare spending, tax increases, and a rise in the price of services in the public sector. Furthermore, as part of these attacks, they are out to isolate and demoralize local government workers, planning to reorganize them as "public officials" (i.e., as part of the state bureaucracy) . They are being aided in this by the Communist party's line, which says that "teachers follow a sacred profession" and "local government employees are public servants. The labor-management confrontation around the question of restructuring the finances of Japan National Railways, centering on the proposal to lay off 160,000 JNR workers, is emerging as a decisive axis. Actions around the issue of the right of public-sector workers to strike will become a focal point of the Japanese political situation during the next few years. The tremendous combativity of the Japanese working class - centering on the public-sector trade-union federation Korokyo - which has been on the rise ever since victory was won in the "smash marusei" struggle, has not receded in the least and is staying the hand of the bourgeoisie. Furthermore, the collapse of imperialist control in Asia, brought about by the victory of the Vietnamese revolution, is accelerating the political crisis of Japanese imperialism. Japanese imperialism now completely lacks the economic reserve power to cope with the offensive struggles of workers and peasants both within this country and abroad. Given the present financial crisis of the state and of regional local governments, its ability to economically and politically sustain the U.S. -Japan-South Korea counterrevolutionary military structure is extremely limited. 34
The response of the bourgeoisie and the "hawks" of the Liberal Democratic party to the recent right-to-strike struggles shows that they also lack the margin for concessions even to demands supported by the SP, CP, and Mindo bureaucrats. Prospects for the Japanese economy The recession first started to bottom out in the first quarter of 1975 and the economy began heading toward recovery in the second quarter of that year. But the process of recovery has been very slow and drawn out so far. The government's 1976 Economic White Paper divides this process into three periods, noting the characteristic features of each. During the first period, from April to July 1975, production recovered rapidly from its lowest recession level. This was followed by a period beginning in the summer of 1975, during which the economic recovery was interrupted, coming to a standstill and stagnating for four to five months. In the third period, during the first quarter of 1976, production again began to recover rapidly, led by an increase in exports which began at the end of 1975. Starting around February 1975, as individual consumer spending stagnated and the slump in equipment investment continued in the private sector, the government put forward its usual policies to refloat the economy by means of fiscal investments. But in the first half of 1975, this consisted mainly of advancing investments in the public sector (of which the key ones were in housing construction and pollution reduction), carried out strictly within the original budgets; no additional funds were allocated. In September 1975, faced with the economic standstill that had set in during the summer, the government launched its "Phase IV Anti-Recessionary Policies. " These were large-scale investments totalling some
1, 500,000 million yen (US$5, 000 million), accompanied by a new issue of national bonds to cover the deficit. Nevertheless, these investments failed to play a significant role in stimulating economic recovery. The recovery in production activity, which became pronounced again during the first quarter of 1976, was led by a rapid increase in exports. These exports (mainly automobiles and electrical products) beyan to rise rapidly during the fourth quarter of 1975. According to the White Paper, this rise in exports pushed the real GNP 0.9% higher in the fourth quarter of 1975 and 2.9% higher in the first quarter of 1976 than it would have been in the absence of those new exports. Of the 3.5% overall increase in the real GNP from the fourth quarter of 1975 to the first quarter of 1976, some 2.1% was directly or indirectly attributable to the rise in exports. Thus, the economy was once again beginning a favorable recovery, but this was soon accompanied by a rapid rise in wholesale prices, signaling a revival of inflation. If we examine the trends of prices we find:
1. The rate of increase in wholesale prices in the second half of fiscal 1975 was very high compared with those seen during recoveries from previous recessions.
2. In contrast to past experience, this quite rapid rise continued as the recovery in production progressed.
3. This rapid rise in wholesale prices occurred under economic conditions of an unprecedented wide gap between supply and demand (industry was still operating well below capacity).
4. The rate of overall wholesale price increase was just as high as the rate in individual industries where corporate earnings were bad. This indicates that the wholesale price rise occurred while industry continued to operate well below capacity. These features of the recovery created pressures to increase prices of manufactured products, in the same way that the increased burden of fixed costs when production was cut back created pressures to increase production (as pointed out earlier). The bourgeoisie is trying to escape the prolonged business crisis of the recession by raising the prices of manufactured goods. Therefore, it is not so much a question of whether or not the government's economic policies - propped up by fiscal spending - had the effect of creating sufficient demand to stimulate private investment in equipnent, but rather of whether or not it brought about sufficient improvement in the supply/demand situation to make it possible for price increases to compensate for the rise in fixed costs due to the corporations' prolonged production cutbacks. Almost all sectors of manufacturing industry find themselves in a situation in which they cannot improve corporate earnings except by planning drastic increases in the prices of their products. Hence, the plan is to improve the relationship of demand and supply so that it will become possible to raise prices. Boosting the pace of production recovery to such a tempo (and accelerating it further) depends on the anticipation of an improvement in corporate earnings through price increases. The government's economic policy is to create a situation in which that can be done. Because of the lack of such a situation, production was being restricted in many industries up until the end of 1975. We may thus expect that during the stage in which the tempo of recovery in production begins to rise, this rise will amost certainly be accompanied by an even greater increase in wholesale prices. Pressure to raise prices, along with the main causes of price rises, is growing tremendously. First of all, the rising cost of financing investments and the growth of investment in pollution control are lowering corporate earning power. That is, under conditions of low growth, the high investment ratio which corporations must undertake becomes a factor exerting pressure on corporate earnings, a deep-rooted cause of price rises. Hence, during periods of low growth, the capital coefficient rises in both the public and private sectors. The rise of capital costs in the private sector is converted into rising prices. In the public sector it brings on rising fares and taxes. For that reason, the very existence of a monopolistic system is creating an inflationary pricefixing mechanism. And now, corporate financing is beginning to be pressured due to the tremendous increase in the national debt, which naturally forces the Bank of Japan to intervene by buying up foreign currency in order to ease the pressure. This inevitably causes an increase in the money supply, accelerating inflation. The current economic recovery thus appears to be tracing the curve predicted by Ernest Mandel: a rise in the economy beginning in late 1975, a new and more serious acceleration of inflation in 1977, followed by another recession. And already, at a stage in which the economic upswing has barely begun, the rise in wholesale prices is reaching a dangerous level. Wholesale prices rose by 1% between June and July 1976, and it looks as if such a rate of increase will continue for seven or eight months. This corresponds to a twodigit (approximately 12.7%) annual inflation rate. Naturally, such a rise in wholesale prices must inevitably spread to consumer prices. In fact, we are now beginning to see this, as price rises are being projected for electricity, city gas, rice, national and private railroads, telephone and telegraph service, etc. If the economic upturn is accompanied by a resurgence of inflation, the danger arises that anti-inflationary policies might be applied under conditions in which the upturn has only been temporary, and sufficient investments could not be carried out to cause a qualitative improvement in productive capacities. Particularly in the recent recession, which came after a ten-year boom in the cycle of equipment investments, equipment investment sufficient to bring about a qualitative improvement in productive capacities has not been undertaken during the last two or three years. In regard to this, we can say that the direction in which this upturn shifts will decide the fate of the Japanese economy for several years to come. The 1975 Economic
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JAPAN White Paper points out that the key to a long-term upturn in the economy lies in attempting to bring about a recovery not through the self-defeating scheme of raising prices of manufactured goods, but through raising the operating level of industry while holding down inflation as much as possible. And for that purpose, fiscal investments to back up the recovery must be carried out without losing any time. But the present governmental crisis, triggered by the Lockheed bribery scandal, is delaying the passage of the national budget, and in that respect putting a brake on the recovery. The recovery is clearly reaching a limiting point beyond which it cannot progress led by exports alone. It is becoming imperative for corporations to opt for raising the prices of manufactured products. Of course, the competitive position of Japanese capitalism's exports has not fallen so much, in spite of the blow of the oil shock. At first, under the system of fluctuating currency exchange rates, the exchange rate of the yen was permitted to drop in proportion to the erosion of its purchasing power by domestic inflation. This had a reciprocal effect on Japanese exports, making them relatively cheaper - to such an extent that the competitive position of Japan's exports of machinery became stronger than that of West Germany's. What underlay this trend, however, were Japan's unique "employment adjustments. "That is, temporary and part-time workers, such as housewives or members of farm families who had gone to work in factories (Japan's internal "immigrant labor"), were sacrificed. (It is because of this employment structure that Japan's unemployment rate is rigged to show a low figure.) Another factor was the trend in wages, which shifted flexibly in accordance with the economic situation. During the 1974 shunto, under conditions of high inflation, wage increases reached 33%. But in 1975 the average wage increase sank to 13%, and in 1976 it was held to 8.8%. Thus, this improvement of the competitive position of Japanese exports, which ensured the surprisingly rapid recovery of exports, was accomplished at the cost of great suffering for working people. However, from now on these very factors will give rise to a series of new problems. One of these is that the "employment adjustments" based on the lifetime employment system, which have rescued the competitive position of exports during the present reconversion of the industrial structure, are reaching their limit. Many corporations, bogged down by excess employment, are faced with long-term "employment adjustments" - including a reorganization of the lifetime employment system itself. Another problem is that the expansion of exports as a result of the depressed value of the yen under the system of fluctuating exchange rates is being threatened by the trends of world currency markets, where the exchange rate of the yen is tending to rise. This factor is related 36 to the prospect of a favorable economic upturn, which will guarantee investment in equipment to strengthen production capacities, but it is also influenced by the prospect of increased imports, which would balance the rapid rise in exports. To depend upon a one-sided increase in exports due to the effect of an exchange rate which is continually held down by dumping operations on currency exchange markets would strengthen the tendency toward import restrictions by the advanced capitalist countries and probably destroy the balance of world trade. In reality, however, it looks as if the situation is tending to evolve more and more along these lines. In any event, the Japanese economy will probably continue its recovery through the end of 1976 and into the first half of 1977. But it appears most likely that the recovery will be ended rather soon by a further resurgence of double-digit inflation and that this will provoke currency dumping and import restrictions by the advanced capitalist countries. Such a situation can only be exacerbated by the present governmental crisis of the Japanese bourgeoisie. August 23, 1976 FOOTNOTES:
1. The disruption of the Japanese economy following the surprise devaluation of the U.S. dollar in 1971 is known as the "dollar shock. " One year after the abolition of the fixed exchange rate, inflation in Japan rose to more than 30%.
2. Shunto is the annual "spring labor offensive" waged in April when trade-union contracts are renegotiated.
3. Marusei was a "productivity policy" consisting of rationalization and speed-up which the government attempted to impose on railroad, postal, and other public-sector workers in 1972.
4. Mindo is the faction of left-wing Social Democratic bureaucrats which has controlled Sohyo, Japan's largest trade-union federation, since the 1950s.
5. The "Plan to Restructure the Archipelago" was the economic policy of the Tanaka cabinet. It called for a massive program of public works to facilitate the development of industry. The labor movement strongly opposed the plan as a huge giveaway to heavy industry at a time when government spending on social services was critically inadequate.
6. During the postwar period a broad layer of workers in major corporations were guaranteed permanent employment once hired into certain positions. This relatively privileged sector of the working class is the main base of Domei, the right-wing Social Democratic trade-union federation.
7. The Dodge Plan was the infamous austerity policy enforced by the U.S. occupation forces to revive the Japanese capitalist economy after the second world war.
FROM "MIRACLE" TO Finance Minister Simonsen: "1976 will be a year of belt-tightening." To understand the present conjuncture in Brazil one must analyze the "economic miracle" which preceded it, because it is the crisis of this model as much as the world