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Consuming for production: Japanese national security, nuclear fuel procurement, and the domestic economy

Published online by Cambridge University Press:  22 May 2009

Richard J. Samuels
Richard J. Samuels
Affiliation:
Associate Professor of Political Science at the Massachusetts Institute of Technology, Cambridge.
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Abstract

One of the most intriguing aspects of postwar Japan is a reversal of economic roles in which consumers serve producers rather than vice versa. By acquiescing to “consumer unfriendly” price and distribution systems, Japanese consumers have subsidized Japanese industry and Western consumers as well. Although much of the recent theorizing about Japanese production and consumption has focused on Japanese consumers as end users, it has seldom addressed the question of how Japanese producers that pay more than others for factor inputs remain competitive in world markets. This article uses the case of nuclear fuel price insensitivity, derived from security concerns, to explore how this behavior is institutionalized through regulatory policy in the larger Japanese economic culture.

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Articles
Information
International Organization , Volume 43 , Issue 4 , Autumn 1989 , pp. 625 - 646
Copyright
Copyright © The IO Foundation 1989

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References

1. See Pepper, Thomas, Janow, Merrit G., and Wheeler, Jimmy W., The Competition: Dealing with Japan (New York: Praeger, 1985), p. 6nGoogle Scholar; and Kahn, Herman and Pepper, Thomas, The Japanese Challenge: The Success and Failure of Economic Success (New York: Thomas Y. Crowell, 1979), pp. 64–65Google Scholar.

2. See Nihon Keizai Shimbun, 9 February 1988; The Washington Post, 14 February 1988; and Japan Economic Journal, August 1988.

3. Stories of the $50 melon and the $3.50 cup of coffee are widely reported in the Western press. It is also well known that the recent appreciation of Tokyo land prices has made home ownership an impossible dream for the salaried worker.

4. This is according to Massey, Joseph, Office of the U.S. Trade Representative. A similar survey done ten years earlier was reported in Kahn and Pepper, The Japanese Challenge, pp. 66–67. This early study found that Japanese consumers often paid two to four times more than American consumers for the same goodsGoogle Scholar.

5. Jiji Press Reports, 13 February 1988.

6. Small shopkeepers and local residents are permitted by law to block plans for stores larger than 500 square meters. See The Economist, 13 August 1988.

7. The case of Lion Oil is the best example. See Samuels, Richard J., The Business of the Japanese State: Energy Markets in Comparative and Historical Perspective (Ithaca, N.Y.: Cornell University Press, 1987), p. 224Google Scholar.

8. Dore, Ronald, Flexible Rigidities: Industrial Policy and Structural Adjustment in the Japanese Economy (Stanford, Calif.: Stanford University Press, 1986), p. 129Google Scholar.

9. McCraw, Thomas, ed., America Versus Japan (Cambridge, Mass.: Harvard Business School Press, 1986), pp. 377–78Google Scholar.

10. Fallows, James, “Playing by Different Rules,” Atlantic Monthly, 09 1987, p. 26Google Scholar. Fallows also mentions an Organization for Economic Cooperation and Development (OECD) report (full reference not provided) which states that incomes in the United States and Japan were adjusted for real purchasing power before the “real” dollar-yen exchange rate was calculated. Instead of the current nominal rate of 140 yen to $1, the OECD determined a “real” exchange rate for Japanese consumers at 233 yen to $1. This prompted Fallows to point out that “the gap between the official and ‘real’ exchange rates…is the wealth that Japan has denied its own consumers in order to preserve its market share…. The world would seem to be Japan's bargain basement, but Japan is not interested” (p. 28). For an earlier treatment of the Japanese “production first”, “social quiescence” economic culture, see Bennet, John W. and Levine, Solomon B., “Industrialization and Social Deprivation: Welfare, Environment, and the Postindustrial Society in Japan,” in Patrick, Hugh, ed., Japanese Industrialization and Its Social Consequences (Berkeley: University of California Press, 1976), pp. 439–92Google Scholar.

11. Johnson, Chalmers, “Studies of the Japanese Political Economy: A Crisis in Theory,” paper presented at the meeting of the Association for Asian Studies, San Francisco, 03 1988Google Scholar. The concept of the “developmental state” is introduced in Johnson, Chalmers, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975 (Stanford, Calif.: Stanford University Press, 1982)Google Scholar.

12. Johnson, Chalmers, “How to Think About Economic Competition from Japan,” in Pyle, Kenneth B., ed., The Trade Crisis: How Will Japan Respond? (Seattle, Wash.: Society for Japanese Studies, 1987), pp. 71–83Google Scholar.

13. For the keenest insight into this latter practice, see Dore, Ronald, Taking Japan Seriously (Stanford, Calif.: Stanford University Press, 1987), chap. 9Google Scholar.

14. See the statement of Shinohara Miyohei, formerly of the Japanese Economic Planning Agency, as cited in Scott, B. and Lodge, G., U.S. Competitiveness in the World Economy (Cambridge, Mass.: Harvard Business School Press, 1985), pp. 97–98Google Scholar.

15. In fact, Japanese manufactured goods remain competitive in world markets despite higher factor costs in a range of industrial commodities. Japanese producers often pay more than producers elsewhere for copper, soda ash, aluminum, crude oil, uranium, and coal, despite the lower cost of these commodities on spot markets. Cartels and other industry-wide agreements, including “industry laws” governing production, capacity, and industrial structure, have been common in these sectors. Until recently, Japanese utilities also paid higher prices than utilities in other industrial states for oil and coal. For comparative historical data on coal prices, see OECD and International Energy Agency, Coal Information 1986 (OECD: Paris, 1986), p. 21Google Scholar. For similar data on oil prices, see Samuels, , The Business of the Japanese State, p. 218Google Scholar. For information on urea (a compound used in chemical fertilizers) and aluminum, see Peck, Merton J., Levin, Richard C., and Akira, Goto, “Picking Losers: Public Policy Toward Declining Industries in Japan,” Journal of Japanese Studies 13 (Winter 1987), pp. 79–123CrossRefGoogle Scholar. In the case of aluminum, higher costs were partially offset by a cooperative rebate system involving importers, smelters, and fabricators. In the case of urea, there was little import penetration despite a sizable price differential, as reported in 1985 by William V. Rapp (former economic secretary at the U.S. Embassy in Tokyo) and cited by Peck, Levin, and Goto (p. 115). Observing this pattern throughout the chemical fertilizer industry, some have called it “hidden protection” and have tied it to market management by officially designated cartels (pp. 115–16).

16. For a theoretical treatment of resource diplomacy and energy policy, see Bobrow, Davis B. and Kudrle, Robert T., “How Middle Powers Can Manage Resource Weakness: Japan and Energy,” World Politics 39 (06 1987), pp. 536–65CrossRefGoogle Scholar. In Rosecrance, Richard, The Rise of the Trading State (New York: Basic Books, 1986)Google Scholar, Rosecrance explores the economic basis for foreign policy and argues that the Japanese-style practice is replacing territorial acquisition as the dominant model in international relations. For a comparison of U.S. and Japanese resource diplomacy, see Vernon, Raymond, Two Hungry Giants: The United States and Japan in the Quest for Oil and Ores (Cambridge, Mass.: Harvard University Press, 1983)CrossRefGoogle Scholar. For an examination of the broader notion of “comprehensive security,” see the essays in Scalapino, Robert, ed., The Foreign Policy of Modern Japan (Berkeley: University of California Press, 1977)Google Scholar; and Frost, Ellen, For Richer, For Poorer: The New U.S.-Japan Relationship (New York: Council on Foreign Relations, 1987)Google Scholar.

17. See, for example, Samuels, , The Business of the Japanese State; and Marie Anchordoguy, Computers, Inc.: Japan's Challenge to IBM (Cambridge, Mass.: Harvard University Press, 1989)Google Scholar.

18. See Dore, Ronald, British Factory-Japanese Factory (Berkeley: University of California Press, 1973)Google Scholar; and Cole, Robert, Work, Mobility, and Participation (Berkeley: University of California Press, 1979)Google Scholar.

19. See Friedman, David B., The Misunderstood Miracle (Ithaca, N.Y.: Cornell University Press, 1988)Google Scholar. Despite the fact that the high U.S. productivity is largely attributable to the mining and agriculture sectors and that several Japanese manufacturing industries have recently achieved higher productivity than their American counterparts, it remains problematic to presume that the difference in productivity rates is great enough to negate Japan's high costs or that Japan's efficiency, which was achieved in the 1980s, explains a pattern of high-cost production that began in the 1950s or earlier.

20. Nucleonics Week, vol. 17, no. 37, 9 09 1976Google Scholar.

21. NUEXCO Monthly Report on the Nuclear Fuel Market, no. 200, 04 1985, p. 19Google Scholar.

22. Ibid., various issues.

23. These data are from Iinkai, Denki Jigyō Rengōkai Tōkei, Denki Jigyō Binran (Electric industries handbook) (Tokyo: Nihon Denki Kyōkai, 1987), p. 123Google Scholar; and Edison Electric Institute(EEI), Statistical Yearbook of the Electric Utility Industry (Washington, D.C.: EEI, 1986), p. 72Google Scholar.

24. The most recent private EPC is the Okinawa Electric Power Company, which Japan inherited from the United States at the time of Okinawa's reversion to Japanese sovereignty in the early 1970s and which became Japan's tenth private EPC on 1 October 1988. It operates no nuclear facilities.

In addition to the private EPCs, there are two quasi-governmental “public policy companies” that generate electric power: the Japan Atomic Power Company (JAPCO) and the Electric Power Development Corporation (EPDC). These companies are restricted to the wholesale provision of electricity to the private EPCs. JAPCO was created to import British Calder Hall reactor technology in the late 1950s, and it currently operates three conventional reactors. EPDC was formally “privatized” in 1986, although the Japanese government retains considerable shares. It currently operates no nuclear power plants but is slated to build and operate Japan's “advanced thermal reactor” in the 1990s. No nuclear fuel contracts for the upcoming thermal reactor have been reported.

There are also thirty-three small wholesale power distribution companies operated by municipalities and prefectures and twenty-one joint public-private distribution companies. These firms do not generate power and therefore do not procure nuclear fuel.

For an overview of the Japanese electric power industry, see Samuels, The Business of the Japanese State, chaps. 4 and 6.

25. For the full list of “nonliberalized” goods, see the “import public announcement” (yūnyūkōhyō) issued by MITI on 20 May 1987.

26. ANRE is responsible for the promotion and regulation of the EPCs, and its advisory commissions (shingikai) are the forums within which rate structure, regulation, and other energy policy issues are discussed.

27. The term “private ordering” was first used to characterize administrative guidance by Young, Michael in “Judicial Review of Administrative Guidance: Governmentally Encouraged Consensual Dispute Resolution in Japan,” Columbia Law Review 84 (05 1984), pp. 923–83CrossRefGoogle Scholar.

28. MITI was instrumental in securing support from the Ministry of Finance for the creation of the Metal Mining Public Corporation (MMPC), a quasi-public agency responsible for overseas uranium surveying and exploration. Like the Japan National Oil Company and like the EPDC (even after its “privatization” in 1986), the MMPC is a “public policy company” designed to assist utilities financially and technically but not to compete with them. For example, the MMPC began a demonstration project to separate uranium from sea water in 1981. Its pilot plant began operating in 1986 and separated ten kilograms of uranium per year. Other public corporations associated with the STA, such as the Power Reactor and Nuclear Fuel Development Corporation and the Japan Atomic Energy Research Institute, contribute to the joint efforts of the private utilities and the government to sustain the utilities in their primary service roles.

29. Interviews with MITI and EPC officials in Tokyo, June 1987. In February 1980, Fuwa Tetsuzō of the Japan Communist party challenged the government's practices of allowing large nuclear fuel stockpiles and allowing construction costs to be included in the rate base and passed along to consumers. But the system was defended and was left unchanged until 1988. See Proceedings of the Budget Committee (Yosan linkai) of the House of Representatives, 1 February 1980, pp. 21–24.

30. Personal correspondence with a MITI official, September 1988. See also Kenkyūkai, Denki Ryōkin Mondai, Shimin no denki ryōkin: Sono seikaku to shikumi (Citizens’ electric power rates: Their characteristics and structure) (Tokyo: Denryoku Shimpōsha, 1984)Google Scholar.

31. Personal correspondence with a MITI official, September 1988. The definition of what is the “appropriate level” is characteristically vague.

32. For current and historical data regarding investments in nuclear fuel and for details on rate calculation, see “Electric Power Industry in Japan. 1986,” Japan Electric Power Information Center, Tokyo, 1987Google Scholar.

33. Interviews with MITI and EPC officials in Tokyo, June 1987.

34. These calculations are based on 1984 data reported by Ichiro, Maeda in Nihon ni okeru genshiryoku hatsuden no sentaku (Choices for nuclear power in Japan) (Tokyo: Institute of Energy Economics, 1987)Google Scholar. Comparisons of fuel price sensitivity (D) are calculated by multiplying a hypothetical doubling of fuel prices (100 percent increase = A) by both the share of that fuel's cost in total nuclear power generation (B) and the share of that fuel in total electric power supply (C). The above example of a doubling of uranium prices for Japanese utilities is calculated as follows: (A = 1.00) x (B = 0.05) x (C = 0.207) = (D = 0.01).

35. Moriyama Shingo, director-general of ANRE, acknowledged that MITI encouraged the importation of nuclear fuel in the 1970s as a way to reduce foreign reserves as well as to enhance the security of supply. See Proceedings of the Budget Committee, 1 February 1980, p. 23.

36. Interview with an EPC official in Osaka, June 1987.

37. Note, for example, how the U. S. Trade Bill of 1988 excludes the Toshiba Corporation, the parent company of Toshiba Machine, from entering into procurement contracts with the U. S. Department of Defense for three years.

38. Telephone interview with a MITI official, November 1987. The text of this memorandum (Tsūtatsu no. 898) is not publicly available.

39. See The New York Times, 2 November 1988.

40. See the statement about Japan's position on Namibia which was delivered by Kikuchi, K., Permanent Representative of Japan, at the United Nations Security Council, 6 04 1987Google Scholar.

41. For the text of this debate, see Proceedings of the Budget Committee, 19 December 1974, pp. 14–15.

42. Throughout this article, Japanese names are given in the Japanese style with the family name listed first.

43. Proceedings of the Budget Committee, pp. 14–15.

44. Ibid.

45. Tsūsanshō kōhō no. 7650, 31 May 1975.

46. Telephone interview with an official of the Foreign Ministry, December 1987.

47. Interviews with utility and government officials in Tokyo and Osaka, June 1987.

48. See Hearings Before the Special Committee for Prices (Bukka Mondai nado no kansuru Tokubetsu linkai) of the House of Representatives, 26 February 1980, pp. 22–23.

49. The 1986 U.S. congressional action that banned South African uranium imports excludes processed materials from the sanctions.

50. Owing to safeguard procedures, these forms are not publicly available.

51. The best example of aggressive Japanese journalism on this sensitive issue is the “Prosecuter's Scoop” published in the 11 and 18 October 1988 issues of Touch, a weekly magazine. The magazine accused the Japanese nuclear industry of “smuggling stolen goods” (language borrowed from the UN decree to describe Namibian materials) and of “dirty tricks.” See also Nikkan Kōgyō Shimbun, 19 November 1988, for a report of the Tokyo Electric Power Company announcement.

52. For a theoretical elaboration of reciprocity, see Axelrod, Robert, The Evolution of Cooperation (New York: Basic Books, 1984)Google Scholar. For an elaboration of the reciprocity model in the Japanese political economy, see Samuels, The Business of the Japanese State.

53. At least to this extent, the traditional incentives work. Other factors, such as recurrent difficulties with the Japanese trade balance, are also relevant here. Historically, Japanese purchases of nuclear fuel have been directed at reducing the Japanese trade surplus. Pressures on Japan to buy more abroad and thereby reduce its trade surplus may result in disincentives to bargain for lower prices on nuclear fuel. Trade problems may have a particularly strong effect on the electric power sector because of its close relationship to MITI, which acts both as regulator and as trade supervisor.