894.00/3–248
Memorandum of Conversation, by Mr. Warren S. Hunsberger of the Division of Research for the Far East1
Dr. Fine is on temporary duty in Washington. He called to answer questions concerning Japan. In the course of the conversation he expressed the following:
Political Problems
The recent fall of the Katayama2 cabinet resulted not so much from immediate issues like SCAP’s insistence on balancing the Japanese budget, as from basic economic problems which no Japanese cabinet can solve. As a result of these problems the Katayama cabinet gradually lost its support. Its coalition support lasted as long as it did, not so much from strength, as from an unwillingness on the part of others, especially the Liberal Party, to assume responsibility for overthrowing Katayama or forming a government.
There is no major antagonism, in the minds of the Japanese people, between the Japanese Government’s attitude and policies and those of SCAP. Both the representative Japanese and the educated Japanese feel that an alignment with the US is to Japan’s interest, rather than thinking of the Japanese Government as a pawn of the U.S. On its side, the US, in the Japanese view, is obligated by sheer self-interest to continue to make political and financial investments in Japan. The Japanese appreciate US support and friendship. There is no evidence whatsoever that the Japanese will stall in order to get more aid from the US. There has been some stalling recently, as in the case of the large coal producers, whose production records were very poor, but the evidence shows that the reason is price difficulties, especially price instability and a desire to consume [conserve?] Japan’s limited resources.
A major Japanese need is a clear US program on the basis of which they can plan definitely for the next few years. At present they are overwhelmed by uncertainties.
[Page 955]The Economic Stabilization Board is a creature of SCAP. No head of ESB before Wada was effective. Other personalities in the Katayama Government, with few exceptions, were incompetents and political hacks. Some phases of administration have been much better handled under the Katayama Government than before, for example rationing, price control and food collections. Rice collections are now some 90% of quota, whereas a year ago only some 67% of quota had been collected. This remarkable record means an important reduction in reliance on the black market, with its consequent inflationary pressure.
A basic political problem is the struggle between the left and the right. The Communists, although few in number, are prominent in the ideological and propaganda struggle. They have a key group in the National Congress of Industrial Unions and probably expect to gain strength in Japanese unions generally. The basis for SCAP opposition to strikes is simple: SCAP cannot tolerate any major disruption of the Japanese economy; on the other hand SCAP studiously avoids interference in small strikes. The Communists are strong among teachers unions. The teachers are probably the worst off and most frustrated of all bureaucrats, and will represent first-class recruits for Communism until the economic situation improves. There is some development of sound progressivism in Japan, but Japan is still in the melting pot and the shape of the mold is still uncertain. Much distrust of past leadership exists. Inflation and economic distress are prompting the strangulation of the middle class. A fundamental factor is the fundamental extreme conservatism of the Japanese people.
The most important factor in determining whether Japan moves to the left or right is US policy.
Reparations
US policy statements during the past year have seemed to the Japanese to indicate concern for the effects of reparations on Japan. There is no feeling that Japan can produce any large amount of reparations. Capital reparations cost so much to move as to be unattractive to potential recipients. For their successful use a country needs technology, technicians, a flow of raw materials, and an appropriate general level of knowledge on the part of the people. These requirements are largely lacking in the potential recipient countries. At the Baguio Conference of the Economic Council for Asia and the Far East, one interesting meeting discussed this problem and representatives from all kinds of governments and political systems agreed upon the need for technology.
[Page 956]Japanese Representation at International Conferences
SCAP representatives are sent to international conferences under a directive instructing SCAP to arrange such representation as he can.
Economic Conditions
The Japanese standard of living, always low, is now even lower. Prices are quite unstable. Agricultural production, always inadequate to feed the people, is now about normal. Industrial production is only 45% of the 1930–34 average, or 24% of the wartime peak. To secure the 1930–34 average standard of living for the present population would require industrial production at about 125% of 1930–34.
Two basic groups of factors account for the present low level. Losses connected with the war include severance of overseas territories, destruction of 30% of industrial capacity in Japan, disruption of prewar trade patterns with the areas which Japan occupied during the war, and loss of substantial insurance and shipping income (Merchant Marine income used to be $100 million a year). Technological changes of importance are the decline of silk and the decline of Japan’s cotton textile industry. Before the war Japan had about 12 million cotton spindles; at the end of 1947 only 1.8 million were in operation out of somewhat over 3 million still remaining. Japan has now about enough textile capacity for her domestic needs alone.
Cotton trade during the occupation has largely been financed by the US Commodity Credit Corporation, which has provided raw cotton for $50 million of cotton textiles for domestic Japanese consumption and to which there was still outstanding as of the end of 1947 a $70 million obligation. To repay this obligation is most difficult because of the problems in getting dollars encountered by countries which would ordinarily buy Japanese textiles. Consequently it may be necessary to sell Japanese cotton textiles in the US. Dr. Fine recommended to SCAP by cable a week after reaching the US that such sales be pushed. A textile mission under Dr. Jacobs of the American Cotton Manufacturers’ Association has prepared a 16-point program. It is an ingenious scheme to sell Japanese cotton textiles for dollars without sales in the US. The principal suggestion is sales in former Japanese markets, a project SCAP explored when the problem first arose. The whole Far East wants to buy Japanese products, except raw silk, but cannot get the dollars. Other difficulties Japan is encountering in selling textiles in Asia arise out of antagonism to the Japanese, economic depression, and political disruption. The Netherlands East Indies have been one of the largest buyers of Japanese cotton textiles in the post-surrender period. In return Japan has received some metals and oil, and in the future may get some rubber.
[Page 957]Japan can get only part of its raw cotton from India. As a result of pressure from US cotton states a formula has been developed whereby Japan is to get her raw cotton as follows: 40% from the US, 38% from India, 2% from Egypt and 20% unallocated, but with the US a strong bidder for this last 20%.
Japan now gets her three major imports from the US, food, fertilizer, and petroleum. Food imports depend on allocations by the International Emergency Food Committee, to which allocations requests are tailored for appropriations. Food is shipped in US bottoms, received by the Japanese Board of Trade, stored by them under SCAP surveillance, and distributed through Japanese ration channels. Since the hungry summer of 1946, it has been possible through the exchange during the crop year of imported wheat for domestic rice, to provide rice for city consumption throughout the summer, when no rice comes into the cities from the farms. Salt is another important import. It used to come from China. It is now possible to get it from the US, but shipping costs bring its price in Japan up to 10 to 15 times the cost of Chinese salt.
Japanese food production is being pressed as hard as possible. All available area is being cultivated; including former golf courses and air fields. But Japan is confronted with a losing battle on food self-sufficiency because of diminishing returns from cultivation of limited acreage and because of population growth. Total population in Japan has risen from 72 million at the time of surrender to 78.5 million at present as a result of repatriation and natural increase. It appears that the rate of natural increase is now declining, although population statistics are not very good.
Economic Recovery
Japan’s major economic needs today are sufficient rice, textiles, housing and coal. Even present inadequate standards can be maintained only with considerable imports from the US; with trade patterns what they now are these imports from the US cannot be paid for with the proceeds of exports, and continued US aid is necessary. No recovery in Japanese production and consumption will come about without substantial and long-range rehabilitation of the economy.
Plans for economic recovery have been prepared in Japan as well as in Washington. The Economic and Scientific Section of SCAP drew up a plan in the fall. It was approved by General MacArthur and brought to Washington by Mr. Emerson Ross, and on it was based the Army Department’s request for a $180 million rehabilitation appropriation now before the Bureau of the Budget. In the early stages of the preparation of the ESS recovery plan the Japanese Government cooperated closely. Later the Japanese submitted a series of plans on different recovery problems, prepared at Dr. Fine’s request by the [Page 958] Japanese Government working on its own. These plans are in no sense official Japanese plans, since ESS wants to avoid difficulties such as those resulting from press reports about Japanese “demands” in connection with economic recovery.
Dr. Fine left Tokyo three weeks after General McCoy made his statement in the Far Eastern Commission on the US intention to foster economic recovery in Japan.3 During those three weeks no instruction was received by SCAP on asking the Japanese Government to submit an official economic recovery program in accordance with General McCoy’s statement.
The Japanese have not lost their capacity to work, and in this sense they represent a good bet for the US, in fact as good a place as any for US aid. There are no beggars in Japan. But this Japanese ability does not assure that success will be attained in plans to make Japan self-supporting. Such success depends on the world trade pattern and on the intelligence of the US aid program and other complementary programs. Present chaos in world trade is the basic difficulty.
As to the need for intervention in the administration and control of the Japanese economy, the growing SCAP intervention arose out of widespread Japanese incompetence and a certain amount of very able opposition such as that offered by former Finance Minister Ishibashi. Much of SCAP and ESS intervention is simply educating the Japanese, with whom there is much discussion and cordial exchange of ideas. Dr. Fine is not afraid SCAP is pampering or restricting the Japanese.
In administering a recovery program the Japanese should be given the maximum latitude, but SCAP must retain the right to insist on adequate performance. The US must determine a simple set of standards, especially setting up specific items for review and criteria for their review. It is a simple necessity that we gradually withdraw our intervention in the Japanese economy. We have much Japanese good will, and this will help in the administration of a self-support program.
- Present were Dr. Sherwood M. Fine, Economic Adviser, Economic and Scientific Section, SCAP; Maxwell M. Hamilton, in the Department on consultation for Japanese peace treaty negotiations; Hugh Borton, Special Assistant to the Director of the Office of Far Eastern Affairs (Butterworth); Marshall Green, Division of Northeast Asian Affairs; and Warren S. Hunsberger.↩
- Tetsu Katayama, Japanese Prime Minister, May 24, 1947–March 10, 1948.↩
- January 21, p. 654.↩