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MITI's successes and failures in controlling Japan's technology imports

Authors:

Abstract

Includes bibliographical references (p. 41-44). Leonard H. Lynn.
THE
MIT
JAPAN
PROGRAM
Science,
Technology,
Management
MITI'S
SUCCESSES
AND
FAILURES
IN
CONTROLLING
JAPAN'S
TECHNOLOGY
IMPORTS
Leonard
H.
Lynn
MITJP
94-11
Center
for
International
Studies
Massachusetts
Institute'of
Technology
--
31
1 111111111111
-7
W
7
-
L
'0
EZ~r
N
;
-
·
1s6
i
Distributed
Courtesy
of the
MIT
JAPAN
PROGRAM
Science
.
Technology
.
Management
Rm.
E38-7th
Floor
Cambridge,
MA
02139
Tel:
(617)
253.2839
Fax:
(617)
258-7432
E-mail:
robart@mit.edu
OMIT
Japan
Program
MITI'S
SUCCESSES
AND
FAILURES
IN
CONTROLLING
JAPAN'S
TECHNOLOGY
IMPORTS
*
Leonard
H.
Lynn
MITJP
94-11
rts--·--·*IPaCa3-··-ra
·-- ·-
· ·
--CII------'-
t
About
the
MIT
Japan
Program
and
its
Working
Paper
Series
The
MIT
Japan
Program
was
founded
in
1981
to
create
a
new
generation
of
technologically
sophisticated
Japan-aware" scientists, engineers,
and
managers
in
the
United
States.
The
Program's
corporate
sponsors,
as
well
as
support
from
the
government
and
from
private
foundations,
have
made
it
the
largest,
most comprehensive,
and
most
widely
emulated
center
of
applied
Japanese
studies
in
the
world.
The
intellectual
focus
of
the
Program
is
to
integrate
the
research
methodologies
of
the
social
sciences,
the
humanities,
and
technology
to
approach
issues
confronting
the
United
States
and
Japan
in
their
relations
involving
science
and
technology.
The
Program
is
uniquely
positioned
to
make
use
of
MIT's
extensive
network
of
Japan-related
resources,
which
include
faculty,
researchers, and
library
collections, as
well
as
a Tokyo-
based
office.
Through
its
three
core
activities,
namely,
education,
research,
and
public
awareness,
the
Program
disseminates
both
to
its
sponsors
and
to
the
interested
public
its
expertise
on
Japanese
science
and
technology
and
on
how
that
science and
technology
is
managed.
The
MIT
Japan
Program Working
Paper
Series
provides
an
important
means
to
achieving
these
ends.
-
LI
I
aI
--
---
2
MITI's
Successes
and
Failures
in
Controlling
Japan'
s
Technology
Imports
by
Leonard
H.
Lynn
ABSTRACT
Researchers
have
drawn conflicting
conclusions
about
Japan's experience
with
government controls over technology
imports
in
the
1950s
and
1960s.
Some
suggest
that
these
controls
helped
Japan
get
foreign
technology
at
low cost.
The imports
of
basic
oxygen
steelmaking
and
various
computer
technologies
seem
to
support
this
position.
Others
argue
that
Japan's
Ministry
of
International
Trade and
Industry
(MITI)
could
not
possibly
have effectively
monitored
the
large
number
of
technologies
imported.
The
controls
may
have
been
irrelevant.
Other researchers
point
to
MITI's apparent
ineptitude
in
overseeing
the
import
of
transistor
and
polypropyene
technology
as
evidence
that
government
involvement
was
harmful. This
paper
re-examines both
quantitative
data
on
the
imports
and
the
cases
that
have
been
most
often
offered
in
assessing
the
role
of
MITI.
The
paper
suggests
that
MITI
did
have
the
resources
to
effectively
control
technology
imports.
It
suggests
that
the
MITI
role was
generally positive
for
Japan, but
largely
because
of
unusual conditions
pertaining
at
the
time.
-
i
·
3
Government
control
over
technology
imports
is
often
characterized
as
having been
a
central
component
of
Japanese
industrial
policy
in
the
1950s,
60s
and
70s.
As
Johnson
(1982)
puts
it
(p.
17):
"Before
the
capital
liberalization
of
the
late
1960's
and
1970's,
no
technology entered
the
country without MITI's
[the
Ministry
of
International
Trade
and
Industry]
approval;
no
joint
venture
was ever
agreed
to
without
MITI's
scrutiny
and
frequent
alteration
of
the
terms;
no
patent
rights
were
ever
bought without
MITI's
pressuring
the
seller
to
lower
the
royalties
or
to
make
other
changes
advantageous
to
Japanese industry
as
a
whole;
and
no
program
for the
import
of
foreign
technology
was
ever
approved
until
MITI
and
its
various
advisory
committees
had
agreed
the
time
was right
and
that
the
industry involved was
scheduled
for
'nurturing'
(ikusei)."
These
controls,
according
to
some
writers,
helped
Japanese
firms
get
technology under
extremely
favorable
terms
(see,
for
example,
Anchorduguy,
1989;
Henderson,
1972;
Johnson,
1982;
Lynn, 1982;
MITI,
1960b;
Ozawa,
1974;
Peck
and
Tamura,
1976).
Government
withheld
or
threatened
to
withhold
approval
of
agreements
that
were
not
judged
to
be
favorable
to
the
Japanese
side.
Government
also, at
least
on
occasion,
organized
potential
buyers
of
foreign
technology
to
prevent
them
from
bidding
up
prices. Earlier,
when
foreigners
distrusted
the
ability
of
Japanese
firms
to
make
royalty
and
other
payments,
government
guaranteed
the
payments.
 _________CI_
·
____I______IIIIl________l__
4
Some scholars,
however, argue
that
the
Japanese
government's intervention
in
technology
imports
was,
at
best,
irrelevant
and
may
even
have
been
harmful
(see,
for
example,
Friedman,
1988;
Komiya,
1988;
Trezise
and
Suzuki,
1976).
One
issue
is
whether
the
government could
possibly
have
intelligently overseen
the
import
of
the
thousands
of
technologies
imported.
The
skeptics
wonder
if
a
government
agency
like
MITI
would
not
have
been
swayed
to
favor
powerful
firms,
rather
than
acting toward
the
more general
good.
There
is
suspicion
that
government intervention
may
have
blocked
the
import
of
promising
technologies,
or
at
least
caused
delays.
The
Japanese experience matters
at
the
practical
level
because
policy
makers
in
many
countries
look
to
the
postwar
Japanese experience
as
a
model
for
how
government
can
promote
rapid
economic development.
It
matters
at the
theoretical
level
because Japan
is
often
portrayed
as the
most
successful
employer
of
industrial
policies.
If
Japanese
policies
in
the
1950s
and
1960s
were
in
fact
irrelevant
or
harmful,
it
might
be
wondered
if
any
successful examples
of
aggressive
policy
intervention
exist.
Unfortunately,
the
debate
on
Japanese
technology
trade
policy
is
informed
by
an
extremely
narrow
empirical basis.
Thousands
of
major
technology
agreements
were approved
by
the
Japanese
government,
but
the
role
of
government
has
been
closely examined
in
no
more
than
a
handful
of
these,
and
then
not
necessarily
in
enough
detail
to
permit
confident
`aP-------------·
a
-c-l·
. ._..
conclusions.
Further
the
cases that
have
been
examined
have
not
been
brought
together
in
any
systematic
analysis.
This
paper
begins
by
summarizing
the
general
legal-
bureaucratic structure
under
which
technology
was imported
by
the
Japanese.
It
next
critically
reviews
the
evidence
that
has
been offered
for
and against
the
efficacy
of
Japanese
technology
import
control
policies.
Descriptions
that
have
appeared
in
the
literature
are
fleshed
out.
New
cases that
seem relevant
are
presented,
most
notably
that
of
polypropylene.
A
final
section summarizes
what we
might
conclude
from
the
materials
that
have
been presented.
The
overall
conclusion
is
that
government involvement
in
the
technology
import
process
was
important,
though
perhaps
not
as
powerful
as
is
often suggested. The
consequences
of
this
involvement
are
seen
as
having been positive
overall
for
Japan,
though
primarily within
the
limited
historical
context
of
the
1950s
and
1960s.
The
Mechanisms
for
Government Control
Over
Technology
Imports
At
the
end
of
World
War
II
Japanese industry
had
fallen
far
behind
its
counterparts
in
the
United
States
and
Western
Europe.
Japan
had
been
cut
off
from
the
flows
of
technical
information
beginning
in
the
1930s
and
until
the
end
of
the
war
in
1945
(Goto,
1993).
Indeed,
even
in
the
first
postwar
years
Occupation
authorities
tightly
controlled
Japan's
foreign
political
and economic
dealings
and also
imposed
_. __1______1________1_11_1_1
6
restrictions
on
research
and industrial
activities
in
many
areas
(Moritani,
1986).
As
the
Japanese regained
control
over
their
economy,
a
major
goal
was
to
close
the
gap
with
industries
in
the
United
States
and Europe
by
importing
technology.
One
problem
was
that
the
Japanese
did
not
have dollars
or
other
hard
currencies
to
pay
for
technology
and
there was
no
international
market
for
the
yen.
Through
the
1950s
and
most
of
the
1960s
Japan
was
plagued with
balance
of
payments
deficits.
A
solution might
have
been
to
devalue
the
yen,
but
this
was
apparently
not
given
serious
consideration by
the
Japanese government
(Kosai,
1989).
Instead foreign currency
reserves
were carefully
rationed
so
that
food,
raw
materials,
and
the
most strategically
important foreign
technologies
could
be
imported.
In
1949
and
1950
laws
were enacted
to
control
the
flows
of
currency
to
and
from
Japan.
The
1950
Foreign Investment
Law
(FIL)
covered technology
agreements
lasting
more
than
a
year
or
in
which
royalties
or
other
payments were
to
be
made
over
a
period
of
more
than
one
year. Most
analyses
of
Japan's
technology
imports
including
that
in this
paper
focus on
agreements
covered
by
this
law.
Other
technology
agreements
came
under
the
1949
Foreign
Exchange
and
Foreign
Trade Control
Law
(1960b).
Under
these
laws
government
approval
was
required
before technology could
be imported
into
Japan.
If
approval
were
given, however,
payments
to
the
foreign suppliers
of
the
technology
could
be
guaranteed.
1 _
I_
_ p I I
i
7
The
laws
changed
over
time
and controls
became
less
and
less
stringent, but
remained
in
effect until
1980.
Henderson,
(1973)
has
characterized
this
regime
as
it
existed
until
at
least
1972
as
the
most restrictive
by
any
major
country
in
the
world.
A
common Japanese
view,
especially
in
the
early
1950s,
was
that
the
purchase
of
foreign technologies
was
potentially
damaging. Importing
a
technology
just
to
get
the
right
to
use
a
foreign
trademark,
for
example,
was regarded
as
wasting
scarce foreign
exchange.
Some
imported
technologies
were
seen
as
doing
no
more
than
replacing
perfectly
adequate domestic technologies.
Still
others
were
regarded
as
tempting companies
to
neglect
the
development
of
their own
technology,
or
using
funds
that
otherwise
would
have
been used
for
domestic
research.
It
was
also feared
that
foreign
firms
would
use their
technologies
to
gain
control
over
sectors
of
the
Japanese
economy
(MITI,
1960a;
1990;
Ozaki,
1972).
Thus
through
the
1950s
technology
imports
were
only
to
be
approved
if
a
good
case
could be
made
that
the
technology
would
contribute
to
Japan's
balance
of
payments
situation
and/or
to
the
growth
and
development
of
important
industries.
In
practice
this fear
of
foreign technologies
diminished
somewhat
through
the
1950s.
In
1961
government
policy
was
changed.
A
technology
imports was
now
supposed
to
be
approved
unless
government could show
how
the
import
8
would
be harmful
or
that
the
agreement was
unfair
to the
Japanese
buyer.
Japan joined
the
OECD
in
1964
and
came
under
pressure
to
further
liberalize
its
technology
imports
(Ozaki, 1972).
Further
liberalization measures
in
1968
offered
automatic
approval
within
one
month
for
contracts
valued
at
under
$50,000,
though
there
were
numerous exceptions
(Wise, 1974;
Henderson,
1973:
Peck
and
Tamura,
1976).
In
May
1973
capital
imports
were
liberalized
except
in
certain designated
industries such
as
computers.
In
1976 the
designated
industries
were
also
liberalized
and
in 1980
the
FIL
was
abolished
(Johnson,
1982).
To
a
degree
then,
from
1950
until
1960,
and
then
decreasingly
until
1980,
the
Japanese government
had
formal
control
over
all
major
technology agreements
between
Japanese
firms
and foreigners.
The
formal,
legally
mandated
process was
rather
complicated
and
involved
many
parts
of
the
government.
A
firm
submitted
its
application
for
a
technology
import
to
the
Ministry
of
Finance
(MOF).
MOF
sent
copies
of
the
application
to
the
Ministry with
jurisdiction
over
the
technology,
most
often MITI.
MITI's
Industrial
Finance
Section
received
the
application
from
MOF,
and
sent
it
to
whatever
MITI
section
oversaw
the
technology.
Here
the
actual
review
of
the
technology
would
take
place.
Opinions
would
be
written
and
reviewed
at
meetings
that
included
people
from
competent
sections
and
bureaus
as
well
as
r~~~~~~~~~~l
l ~
~
~
~
~
~
~
~~~~~~
-
....-
~~~~~~~~~~~~~~~~~~~~~~~~~~~-----
9
representatives
from
the
Raw
Materials
and
Production
Bureaus
and,
when
appropriate,
the
Patent
Bureau.
The
Industrial
Finance
Section
would
collect
the
written
opinions from
all
concerned
and
write
an
opinion
for
MITI.
The
various applications
and
opinions
would
be
reviewed
at
weekly
meetings
of
the
executive committee
of
the
Foreign
Exchange
Advisory
Council.
Finally,
the
Council
would
approve
the
application, reject
it,
or
send
it
back
for
renegotiation
(MITI,
1990).
In
the
case
of
applications overseen
by
MITI
the
key
official
was
generally
the
deputy
section
chief
(kacho
hosa)
of
the
relevant
section. This
person had
the
most technical
expertise,
and
the
most
influence
over
the
approval decision
(Ekonomisuto,
1976;
Komiya,
1988).
Aside
from
technical
criteria,
the
government checked
the
various conditions
in
the
agreement.
If
the
agreement called
for
royalty
payments
higher
than those
paid
for
similar
technologies,
included
export
restrictions,
or
required
the
import
of
foreign
raw
materials,
it
might be
sent
back
for
renegotiation
(MITI,
1990).
Economic conditions
such
as
balance
of
payments
deficits
might
cause
the
government
to
delay
the
approval
process.
This
appears
to
have
been
a
factor,
for
example,
in
the
drop
from
120
agreements
approved
in
1957
to
only
96
agreements
approved
in
1957,
and
the
bounce
back
to
153
agreements
approved
in 1959
(MITI,
1990).
One
source,
not
documented,
but
apparently primarily
based
on
the
experiences
of
foreign
lawyers
in
Japan,
claims
_1_____1______1________·I___ 1 _ _____1 _1____1__1______________
10
that
applications
were
seldom
formally
denied
(Wise, 1974).
Peck and
Tamura
(1976)
report data
indicating
that
from
1962-1966
90.4%
of
the
applications were
approved
and
4.7%
were
still
pending
--
only
4.6%
had
been
rejected.
It
is
not
known,
however,
if
the
rejection
rate
might have
been higher
during
the
period
of
intensive
scrutiny
in the
1950s.
Nor
is
it
known
how many
applications were informally
rejected
by
officials
before
they
were formally
filed.
As
we
shall
see
in
the
case
of
polypropylene,
the
power
to
reject
applications
was
used
on
occasion
to
considerable
effect.
MITI's
Ability
to
Screen
Technology
Imports
Some
have
suggested
that
MITI
officials
could
not
have
carefully
evaluated
the
thousands
of
technologies that
received
approval.
As
Trezise
and
Suzuki
(1976:
788)
put
it:
"It
is
possible
also
to
speculate
whether
the
sheer
volume
of
particular
decisions
left
to
the
bureaucracy, especially
during
the
years
of
full-scale foreign
exchange
and
quantitative
import
controls,
did
not strain
the
capability
of
officials
to
make
the
best
choices.
The
procedures
governing
imports
of
technology,
for
example,
required
intensive
case-by-case
screening
until
mid-1968.
During
the
period
1949-1968
some
5,000
type
A
technology
import
agreements
(those
involving outlays
of
foreign
exchange)
were processed
....
"
Friedman
(1988:
121-122)
notes
that:
"machine
tools,
one
of
33
industrial
groups
in
the
'general
machinery'
I
11
classification,
alone
had
over
220
tie-ups.
It
would
have
been
impossible
for
the
bureaucracy,
and
the
Industrial
Machinery
Bureau,
to
have
controlled
the
terms
of
all
of
these
agreements."
In
response
to
this
line
of
argument
it
should
be
noted
first
that
the
number
of
technologies
reviewed
was
far
smaller
than
the
number
of
agreements
approved,
second
that
many
of
the
technologies did
not
require
much
review, and
third
that
the
government
was
well
structured
to
undertake
the
review
process.
While
5,000
Type
A
agreements
were
approved
between
1949-68,
this
does
not
mean
that
5,000
different
technologies
had
to
be reviewed.
Many
of
the
agreements
were
duplicates.
Thirty-three Japanese
firms,
for
example,
had
agreements
approved
to
purchase
the
same
black
and
white
television
production
technology
from
RCA
(MITI,
1990).
Between
1963
and
1970
duplicate
agreements
accounted
for
between
35.6%
and
73.6%
of
all
of
Japan's
technology
imports
(Peck
&
Tamura,
1976).
Additionally,
multiple
agreements were often required
to
import
a
single
technology.
When
the
basic oxygen
furnace
(BOF)
technology
was
imported,
for
example,
separate
agreements
were
signed
for the
BOF
production
technology,
technology
to
make
the
vessels
in
which
the
steel
was
produced, and
technology
to
produce
brick
to
line
the
vessels
(Lynn,
1982).
Firms
importing
transistor technology
needed
to
import
both patent
rights from
Western
Electric
_
____l_____l__llls_____·-~~~~~~.__
_- _1
_____
-----
_ _
12
and
production know-how
from
RCA
(MITI,
1990).
Half
a
dozen
or
more technology
import
agreements
were
involved
in
the
construction
of
each
of
Japan's
new
petrochemical
centers
in
the
late
1950s
and early
1960s
(Kudo, 1990).
Second,
many
of
the
agreements
did
not
require
much
technical
evaluation
on
the
part
of
officials.
Often
the
technologies
were well-established
around
the
world
before
the
import
(e.g.
DDT,
streptomycin,
radar).
Additionally,
many
agreements
were
just
for
patent
rights
that
would make
it
legally
possible
for
Japanese
firms
to
continue
in
an
industry
where
they
already
had
the
technical
know-how. Some
accounts
say
this
was
the
case
with
Toyo
Rayon's
famous
import
of
Dupont's nylon patents
(Kawamura,
1983).
Nearly
half
the
agreements
in
the 1950s
were strictly
for
patent
rights
(MITI, 1990).
Finally,
the
government
had
a
formidable
bureaucracy
to
process
the
agreements. Most
discussion
has
centered
on
MITI's
role,
but
other
Ministries were
also involved.
The
Ministry
of
Transportation,
for
example,
handled
the
large
number
of
technologies
related
to
shipbuilding. The
Ministry
of
Health
and
Welfare
processed
technologies
in
the
pharmaceuticals
industry.
The
Ministries
of
Finance, Post
and
Telecommunications, Agriculture,
and Construction
also
had
their
jurisdictions.
What
kind
of
workload
faced
the
bureaucracy
in
evaluating
technologies?
During
the
1950s,
the
period
Trezise
and
Suzuki
are
most concerned
about,
the
largest
111111 ·- ·
13
number
of
Type
A
imports
approved
in
a
single
year
was
153
agreements
in
1959.
The
largest
number
of
agreements,
some
33,
involved chemical
technology
(aside
from
a
very
heterogeneous
miscellaneous
machinery
category).
Some
of
these
agreements
were
for
pharmaceutical
or
agricultural
technology
and
would
not
have
been screened
by
MITI.
Of
the
21
technology
imports
classified
as
organic/inorganic
chemicals,
seven
were
duplicates
(same
technology
from
the
same
source).
This
leaves
only
14
different technologies
to
be evaluated, and
during
the
1950s
about half
of
the
agreements
for
chemical
technology
were
solely
for
patent
rights.
Evaluation
of
these
14
technologies
would
have
been
divided
up amongst
three
different
sections
(two for
organic
chemicals,
the
other
for
inorganic
chemicals)
in
MITI's
Light
Industries
Bureau. At
the
time
the
Light Industries
Bureau included
about
240
officials,
around
a
third
of
whom
dealt
with
the
chemical
industry and
its
products
(MITI
(1961).
It
would
seem, then,
that
a
busy
section
at
MITI
during
a
busy
year might have
reviewed
no
more
than
one
technology
every
month
or
two.
To
be
sure, the
number
of
agreements
increased-
sharply
during
the
1960s.
There
were
about
twice
as
many
imports
per
year
in
the
early
1960s,
around
three
times
as
many
per year
in
the
mid
1960s,
and
more
than
seven
or
eight
times
as
many
per
year
in
the
late
1960s.
As
has
been
mentioned,
however,
the
level
of
scrutiny
14
required/allowed
was
also
sharply diminishing during
those
years.
How
many
technologies
could
a
deputy
section
chief
and
his
section
be
expected
to
review
carefully?
This
question
depends,
for
course,
of
what
it
meant
to
review
a
technology.
MITI
did
not
generally undertake
large
scale
efforts
to
collect technological
information.
The firms
brought
the
information
to
the
Ministry when
they
submitted
their
application
(Ekonomisuto,
1985).
These
materials were
reviewed
by
engineers
who were among
the top
graduates
of
the
best
university engineering
programs.
This
was
especially
true
in
the
1950s
and
1960s
because
owing
to
the
lack
of
attractive alternatives
for
young
engineers
in
the
1940s
and
early
1950s,
many
of
the
best
of
them
went
to
work
for
the
government
(Ekonomisuto,
1985; Lynn,
1882).
In
brief,
it
seems
the
magnitude
of
the
application
review
process
is
substantially exaggerated
by
the
authors
quoted
above.
Policies to
Encourage
Technology
Imports
Two
aspects
of
the
foreign exchange
control
laws
were
intended
to
encourage
foreign
firms
to
export
technology
to
Japan.
First,
the
law
required
the
government
to
list
technologies
needed
by
Japan
(MITI,
1960b:
p.327;
Ozawa,
1974).
It
is
not
clear,
however,
what,
if
any
impact,
this
measure
had.
The
literature
hardly
mentions
it.
----L
i---'
15
Perhaps
more
significant,
the
laws
offered
government
guarantees
that
foreign
firms
supplying
technology
would
be
paid.
Henderson
(1973)
argues
that
this
was
very
important
to
the
foreign suppliers
of
technology
up
until
about
1955.
Interestingly,
the
guarantees seem
to
have
been
somewhat
controversial
in
Japan.
A
1960
MITI
publication
says
the
guarantee
policy
was
criticized
as
a
national disgrace
because
it
was
the
sort
of
measure only appropriate
for
a
backward nation
(MITI,
1960a:7).
On
the
other
hand,
a
senior
MITI
official
of
the
period
argued
in
a
1985
interview
that
the
measure
was
unique
internationally and
very
important
in
encouraging
imports (Ekonomisuto,
1985).
It
seems
plausible
that
the
guarantees
were
useful
as
Japan
re-entered
international
trade,
but
were
of
diminishing
consequence
as
Japanese companies
became
better
known
internationally.
Policies
to
Reduce
the
Price
of
Technology
It
is
widely
claimed
that
a
major
part
of
Japan's
economic
success
during
the
years
of
rapid
growth
in
the
1950s
and
1960s
was
the
ability
of
Japanese
firms
to
acquire
foreign
technologies
at
very
low prices.
Some
blame
U.S.
and
European
firms
for
shortsightedly
"giving away"
technology
to
competitors.
Another
widespread
image,
however,
is
of
a
"Japan
Incorporated,"
including
businesses
and government,
collectively overpowering
individual
Western
firms
in
negotiations
to
get
technology
at
very
low
prices.
On
the
one
hand
government
is
depicted
as
refusing
to
allow
--- ______
1·-·--_il___an1-i^?
-11-_-__--11·-__I.___
.-
flllllll
16
agreements
that
were
not
overwhelming
favorable
to
the
Japanese;
on
the
other
hand
government
is
depicted
as
coordinating
the
negotiating
positions
of
Japanese
firms
to
keep
prices
for
technology
from
being bid
up.
"The
Two-Against-One
Routine"
MITI
is
often
depicted
as
having
regularly intervened
to
make
technology
assistance
agreements
more
favorable
to
the
Japanese
side.
Henderson
(1973:
231)
calls
this
"the
two-
against-one
routine,"
and
says:
"Most
liaison
lawyers
in
the
field
have
examples
of
contracts
previously
signed
by
the
parties
but
returned
after
preliminary
talks
with MITI
replete
with
interlineations
of
(1)
reduced
duration;
(2)
reduced royalty
rates;
(3)
deletions
of
license-back
and
territorial
clauses;
and
(4)
reductions
of
items
covered."
MITI
(MITI,
1990)
records
show
that,
indeed,
government
intervened
to
force
changes
of
the
sort
Henderson
describes
in
about
40%
of
all
the
technology
agreements
submitted
in
the
1950s.
Furthermore,
according
to
Friedman
(1988),
the
threat
of
these
adjustments
led
to
compromises
by
foreign
negotiators
even
before
the
agreements
were
submitted
to
the
government
(p.
244):
"Privately,
Japanese
firms
and
international
lawyers admit
that
MITI
is
sometimes
used
as
a
bargaining
device
to
extract favorable
terms
from
prospective
partners.
The
Japanese
side
can
claim
that
license
fees,
or the
right
to
use
technology,
or
other
aspects
of
a
contract
will
not
c I re I
17
be
approved
by
the
bureaucracy.
In
some
cases
firms
will
argue
that
they
are
legally
prohibited
from
contracting
at
certain
terms."
It
is
difficult
to
estimate
how much
benefit Japanese
firms
may
have gained
from
government
intervention.
Peck
and
Tamura
(1976)
found
that
after
the
liberalization
of
technology
imports
in
the
late
1960s,
royalty
rates
paid
by
the
Japanese did
in
fact
increase,
suggesting
that
intervention
by
the
government
may
have
reduced
costs.
It
is
possible,
however,
that
the
nature
of
the
technologies
imported
also
changed.
Some
of
the
technologies
brought
in
after
liberalization
may
have
been
those
that
were
previously
excluded because
foreign
partners insisted
on
high
royalties,
for
example.
Alternatively,
as
Japan's
economy
grew
and
its
successes
with
past technology
introductions
became better known
foreign
firms
may
have
begun
to
seek
higher
royalties
(Goto,
1993b).
This
discussion
of
royalty
rates
should
not
obscure
the
point
that
the
Japanese government
was
also
very much
interested
in
other
contract
conditions,
some
of
which
may
have
been
of
less
importance
to
the
Japanese
firms
involved.
Because
of
its
foreign
exchange
concerns,
the
Japanese
government opposed
agreement conditions
that
restricted
the
ability
of
Japanese
firms
to
export
or
that
required
the
purchase
of
imported equipment
or
raw
materials.
It
also
blocked
technology
imports
that
were
accompanied
by
foreign
managerial
control.
Kudo
(1990)
notes
that
Dupont
had
a
_ 1___ _-111111.__ ·1_-.
__11____·.·_1.11
18
strict
policy
of
transferring
process
technologies
only
to
foreign
firms
in
which
it
had more
than
50%
equity,
and
thus
managerial
control. This
policy
was
broken
for the first
time
in
a
joint
venture with
Mitsui
Petrochemical
in
Japan
in 1960
at
the
insistence
of
the
Japanese
government.
While
the
Japanese
firms
involved
in
these
negotiations
may
have
benefitted
from
contract
changes
forced
by
government,
it
seems
possible
that
at
least
in
some
instances
there
were
costs
to
them.
Firms
might
have
preferred
lower
license
fees
or
royalty
payments
in
place
of
the
right
to
export
or
in
place
of
managerial
control,
for
example.
If
the
Japanese
firm
could
get
foreign
exchange
it
would presumably
have
little
concern
over
whether
the
sources
of
raw
materials were
foreign
or
domestic.
Trezise
and
Suzuki
(1976)
suggest
that
MITI's
blockage
of
Texas
Instrument's
effort
to
establish
a
more
than
50%
owned subsidiary
to
make
ICs
in
Japan
in
the
late
1960s
delayed Japanese
access
to
this
technology.
Anchorduguy
(1989:
29),
however,
argues
that
by
delaying
Texas
Instruments' access
to
the
Japanese
market,
"...
the
government
gave
the
Japanese
firms,
most
of
which were
Japan's
major
computer
and
telecommunications companies,
a
crucial
opportunity
to
build
up
economic scale
before
encountering
foreign
competition."
It
is
difficult
to
reconcile
these
interpretations,
though
it
is
possible
that
Anchorduguy's
view
from
1989
may
have
revealed
less
damage
_ I I 1 _11__1·1_______11_1_i-
19
to
Japanese
firms
than
seemed apparent
when
Tresize
and
Suzuki
wrote
in
1976.
Keeping
Japanese
Firms
from Bidding
up Technology
Prices
Given
its
authority
to
approve
technology
import
agreements,
MITI
would
seem
to
have
been
in
a
position
to
keep
Japanese
firms
from
bidding
up
prices.
The
best
documented
case
of
this
actually happening
involved
the
introduction
of
the
basic oxygen
furnace
(BOF)
steelmaking
process
from
Austria
in
1956-1957.
Several
Japanese
steelmakers
had
become
interested
in
this
technology
and
were independently approaching
its
developers.
Concerned
that this
would
drive
up
the
price
of
the
technology,
MITI officials
called
together
a
meeting
of
senior
managers
from
the
companies and
orchestrated
an
arrangement
whereby
an
association
of
the
companies
would
collectively
buy
rights
to
the
technology.
In
effect,
two
companies
would
jointly
bargain
with
the
Austrians
on
behalf
of
the
Japanese
industry.
The
cost
to
Japanese steelmakers
of
using
the
technology ended
up
being
a
fraction
of
a
cent
per
ton
of
the
steel
produced with
it,
compared
with
a
cost
to
steelmakers
in
other
countries
of
25
to
50
cents
a
ton.
One
reason
the
price per
ton
ended
up
being
so
low
was
that
both
the
Japanese and
the
Austrians
underestimated
the
future
growth
of
the
Japanese
steel
industry.
Even
if
their
estimates
had
been
accurate,
however,
the
price
to the
Japanese
would
still
have
been
only
seven
or
eight cents
_111
_1__
______1_____1 ___11_1_________1__1_
20
per
ton,
less
than
a
third
that
of
the
price
to
steelmakers
in
other
countries.
The
major
reason
for the
low
price
seems
to
have
been
the
lack
of
competition
between potential
buyers
on
the
Japanese
side
(Lynn,
1982).
Some
sources,
however,
suggest
that
this
scenario
may
have been
unusual
(Goto,
1993;
Ekonomisuto,
1985;
MITI,
1990).
The
most
often
cited counterexample
is
that
of
polypropylene,
a
polymer
used
in
such
products
as
film
and
injection
molded
plastics.
Since
this
case
has
been
widely
referred
to,
but
not
described
in
much
detail,
a
somewhat
detailed description
is
provided
here.
The
Competition
to import
polypropylene
While
the
petrochemical industry
grew rapidly
in
North
America
and
Europe
in
the
years after
World
War
II,
Japan
had
no
true
petrochemical
industry. This
was seen
as
a
problem by
government
officials
in
the
early and
mid-1950s.
Petrochemical
imports
were
beginning
to
increase.
and
new
demand
was
developing
as
Japanese
textile
firms
(with
strong
government
encouragement)
began
the
production
of
synthetic
fibers.
Given
the
concern
of
policy
makers
at
the
time
to
increase
Japanese
economic
self-sufficiency
and
to
move
into
prestigious high technology
areas,
it
is
not
surprising
that
the
government
wanted
to
develop
a
domestic
petrochemical
industry
(Hirakawa,
1972).
I
_I
__
21
In 1954
and
1955
an
overall
policy
was
developed
by
the
Light
Industries
Bureau
of
MITI
in
consultation
with
industry
to
"nurture"
a
petrochemical
industry.
Former
Japanese
Navy
and
Army
fuel
depots
were
sold
to
provide
sites
for
"Kombinats,"
(petrochemical
centers
made
up
of
coalitions
of
firms),
special
loans
were
granted by
a
government
bank,
tax
benefits
were
offered,
and
the
government facilitated
the
import
of
the
needed
technologies.
As
these
policies were
developed
and
enacted
Japan's
first
specialized
petrochemical
firms
were
established,
Mitsui
Petrochemical
and
Nippon
Petrochemical
in 1955,
and
Mitsubishi
Petrochemical
Industries
in 1956.
Sumitomo
Chemicals
entered
the
industry
around
the
same
time,
but
without
forming
a
specialized petrochemical
firm.
These
four
companies
are
generally categorized
as
the
forerunners
in
the
industry
(Hirakawa,
1972;
Kudo,
1990).
The
first four
companies
launched
their
Kombinats
under
the
first
phase
of
MITI's
plan
in
the late
1950s.
The
Kombinats
focussed
on
the
production
of
eythylene
and
polyethylene. These
provided
a
basis
for
synthetic
rubber,
butadiene
and other
products.
Given
the
perceived
opportunities
in
this
new
industry,
one
government
concern
was
to
ensure
that
excessive
competition
did
not lead
to
overcapacity.
Since
the
new
plants
required
imported
technologies,
the
government's
control
over
technology
imports
served
as
a
major
means
to
control
entry
into
the
industry
(ironically,
the
subsequent lackluster
performance
-------
I _ ~ 1 __1___
1~____
22
of
this
industry
in
Japan
is
often
blamed
on
its
having
too
many
firms)
(Hirakawa,
1972).
The
second phase plan
began
as
the
first
was
completed
and
extended
through
the
early
1960s.
Major
government
concerns
under
the
second
phase
were
to
attain greater
scale
economies
by
enlarging
first
phase
facilities,
and
to
extend
the
range
of
raw
materials
and
products.
The
four
firms
that
had already
become
general
petrochemical
firms
under
the
first
phase
plan
wanted
to
solidify
their
positions.
Other
firms
wanting
to
enter
the
industry
were
looking
for
new
technologies
that
might
give them
a
competitive
edge.
Since
MITI
was
determined
to
restrict
capacity
to
projected
demand,
it
was
essential
that
a
firm
be
one
of
the
first
to
import
a
new technology
--
once
MITI
believed
there
was
sufficient
capacity
for
a
given
petrochemical
product
it
would
not
allow
other
firms
to
license
technologies
to
make
the
product.
Thus the
four
petrochemical
firms
and
their
would-be
rivals
saw
themselves
in
a
near
life
and
death
struggle
with
each
other
to
find
and
get
the
rights
to
important
new
technologies
(Oyama,
1972).
Meanwhile
the
Japanese
textile
industry,
one
of
Japan's
most
important industries
in
the
prewar
period
and
in the
first
decades
after
the
war,
was
involved
in
intense
competition
to
import
or
develop
new
fibers.
Toyo
Rayon
had
scored
a
major
success
by
getting
exclusive
rights
to
nylon
from
Dupont
in
1951.
In 1957
Asahi Kasei
gained
an
edge
by
being
first
to
develop
acylic
fiber
technology.
In
1958
-
__..
23
Teijin and
Toyo
Rayon
had
jointly imported
tetron
from ICI
(Uchida,
1966).
At
the
time
polypropylene production was
first
commercialized
it
was
described
as
offering
potential
as
a miracle
fiber that
would
rival
nylon. Thus
the
textile
firms
eagerly
tied up
with petrochemical
firms
that
might
provide
them
with polypropylene
as
a
raw material
for
textiles.
Another
factor
that
contributed
to
the
intense
competition
to
import
polypropylene
technology
was
that
the
theoretical
advantages
of
this
technology were
clear
and
its
development
was
widely
anticipated
(Oyama,
1972;
Uchida,
1966).
The
expected
breakthrough
occurred
in 1955
when
G.
Natta
of
Milan
Polytechnic
University
reported
the
results
of
joint
research
with
Montecatini
in
which
he
had
successfully
polymerized
propylene
(Oyama,
1972;
Uchida,
1966).
In
September
1957
Montecatini completed a
6,000
tpy
polypropylene
plant.
In
1957
four
Japanese
firms
were
still
constructing
the
ethylene
centers
that
were
to
make them general
petrochemical
producers. The
Mitsui and
Sumitomo
centers
began
operations
in
April
1958, the
Mitsubishi
center
in
May
1959
and
the
Nippon
Petrochemical
center
in
June
1959 (Kudo,
1990).
Three
of
these
firms,
the
affiliates
of
the
old
Mitsui,
Mitsubishi,
and Sumitomo
zaibatsu,
were
quick
to
show
an
interest
in
the
new
technology.
Of
these
firms
Mitsui had
the
advantage.
Mitsui had imported
the
Ziegler
technology
--
-1_^_1_·---_·_--___·__II
--
_I
Z
24
for
making
polyethylene.
A
variant
of
the
Ziegler catalyst
was
used
in the
Montecatini
technology,
so
Ziegler
had
good
information
on
the
polypropylene
technology
which
he
passed
on
to
Mitsui
(Sekiyu
Kagaku
Kogyokai,
1971).
Mitsubishi
had
established
contacts
with
Montecatini
while building
its
ethylene
center and
was
well-informed
about
the
technology,
but was
inclined
to
wait
until
the
technology
had
been
proven
for
use
in
synthetic
fibers
and
elastomers.
Sumitomo
Chemical
was
given
information
about
the
technology
by
an
agency
firm
and
later
by
Sumitomo
Trading
(Sumitomo Kagaku,
1981).
Nippon
Petrochemical,
the
other
firm
in
the
industry,
did
not
show
an
aggressive
interest
in
the
technology
at
the
time.
A
firm
that
was
hoping
to
move
into
the
petrochemical
industry,
Nissan
Chemical,
was also
very
interested
in
polypropylene.
Nissan
Chemical
had
earlier imported
Montecatini's
Fauser
Process
technology
and
had
served
as
an
agent
in
Japan
for
the
Italian company's technology. Senior
managers
from
Nissan
Chemical
had
tried
to
negotiate
the
purchase
of
rights
to
the
technology around
the
time
Montecatini started
up
its
first
commercial
polypropylene
plant
in 1957,
but
were
told
to
come
back
some
months
later
(Sekiyu
Kagaku
Kogyo,
1971;
Nissan
Kagaku,
1969).
Mitsui
and
Nissan
Chemical
sent
senior
managers
to
negotiate
with
Montecatini
as
soon
as
Montecatini
was ready
to
receive
them.
Both
firms
signed
provisional
contracts
with
Montecatini
in
February
1958.
The
contracts
were
7e
--
r sll·I
--
L---·"l^--·""-----·--I·--·--L----L- "L'
25
contingent
on the
required
approval
of
MITI and
had
to
be
activated
within
six
months.
On
hearing
of
the
moves
by
these
two
firms
Mitsubishi and
Sumitomo
both
began
their
own
negotiations
with
Montecatini
(Mitsubishi Yuka,
1988;
Sumitomo Kagaku,
1981).
The
Nissan
contract
covered
formed products,
sheet,
textiles,
elasomers,
and
all
polypropylene
technology.
The
fee
was 900,000
dollars,
plus
a
royalty
of
5%.
The
Mitsui
contracts
was
apparently
similar.
Nissan hoped
to
begin
construction
on
a
polypropylene plant
in
October
1958
(Nissan
Kagaku,
1969).
Both
the
Mitsui and
Nissan
agreements were
submitted
to
MITI,
and
both were
turned
down.
MITI
was
convinced
that
polypropylene
should
be
produced
in
Japan,
but
concluded
that
it
was
too
early
to
import
the
technology.
The
technology
had
only been
in
commercial
use
a
short
time,
and
had
not
yet
been proven
viable
in
products
such
as
synthetic
fibers
and
elastomers
--
products
particularly
important
to
Japan.
Further,
the
Japanese
petrochemical
industry
was
still
trying
to
get
its
first
plants
into
operation.
MITI
worried
that
the
attempt
to
introduce
another
new
technology
at
the
.same
time
might overburden
the
industry. Finally,
polypropylene
would
be
made
from
propylene
gas,
which
was
a
by-product
of
ethylene
production.
It
seemed
prudent
to
MITI
to
wait
until ethylene
production
was smoothly
underway
to
ensure
that
this
raw
material
would
be available
(Sekiyu
Kagaku
Kogyo
Kyokai,
1971).
_~~1 _ 1~
1 ~ ~
__
____1-----
----
-- I_
26
MITI
asked
Mitsui,
Mitsubishi,
Nissan
and
Sumitomo
to
agree
to
suspend negotiations
until
the
technology
was
perfected.
In
its
company
history, Sumitomo
claims
to
have
followed
the
agreement,
but
complains
that
the
other
firms
quickly
started
secret
negotiations
with Montecatini
(Sumitomo
Kagaku,
1981).
Meanwhile,
several
German and
American
firms
had
begun
the
construction
of
polypropylene
plants
(Sekiyu
Kagaku
Kogyo
Kyokai,
1971).
During
this
time
polypropylene
was
attracting
the
attention
of
journalists
as
being
the
basis
of
a
light
and
strong plastic,
as
well
as
a
new
miracle
textile
(Nissan
Kagaku,
1969).
In
September
1959
the
Italian
ambassador asked
the
Japanese
Minister
of
International
Trade
and Industry what
the
Japanese
government's intentions
were
regarding
polypropylene.
MITI
used
this
as
an
opportunity
to
re-evaluate
the
technology.
At
the
time
MITI
was
planning
its
second phase
program
for
the
petrochemical
industry.
Because
of
the
importance
of
polypropylene
technology,
it
did
not
just
rely on information
from
the
companies,
but
sent
its
own
survey
team
to
Europe.
MITI
concluded
that
it
should
approve
imports
of
this
technology
This
restarted
the
race
to
import
the
technology
(Sekiyu
Kagaku
Kyokai,
1971).
The
intense
competition between Japanese
firms
to
import
Montecatini's
technology
was
so
widespread
that
it
has
been
dubbed
"the
Montecatini
Pilgrimage."
In
all
a
dozen
companies
from
the
chemical
industry
and
thirteen
from
the
aBs"l a - _I
27
textile
industry
sent
people
to
Montecatini
in
an
effort
to
negotiate
contracts
(Arisawa
and
Nakayama,
1973).
Between
late
1959
and
the
spring
of
1960,
it
has
been
claimed,
hardly
a
day
passed
that
Japanese negotiators
could
not
be
seen
at
Montecatini's
offices
(Oyama,
1972).
Mitsui
was
the
first
to
reach
an
agreement,
on January
16,
1960.
It
seemed
likely
that
only
one
or two
additional
firms
would
be
allowed
by
MITI
to
import
the
technology,
since
two or
three
plants
could meet
the
demand
for
polypropylene
that
MITI
projected
at the
time. The
other
firms
rushed
into
negotiations.
Mitsubishi
signed
a
contract
in
February.
The
Mitsui
and Mitsubishi
contracts
were
approved
in
March
(Mitsubishi
Yuka,
1988).
The terms
of
the
Mitsui
and
Mitsubishi
agreements
were
far
worse
for
Japan
than
those
of
the
conditional
agreements
signed
by
Mitsui
and
Nissan
in
1958,
even
though
MITI
attempted
to
use
the
"two-against-one"
strategy
to
improve
them.
Instead
of
$900,000, the
price
was
now
$3,000,000
(Nissan
Kagaku,
1969).
Some
have attributed
this
to
MITI's
ineptness
in
attempting
to
control
competition
between
the
Japanese
firms
that
were
seeking
to
import
the
technology
(Morikawa,
1976).
Although
MITI
initially
felt
that
Mitsui
and
Mitsubishi
could handle
the
demand
for
polypropylene.
Other
firms
still
desparately
wanted
a
share
of
the
market.
When
news
came
to
Nissan
Chemical
in
January
1960
that
Mitsui
had
concluded
a
new
provisional
contract
with
Montecatini,
two
Nissan
IIII_^_I____L____·__ti-E-_-l.l_
_I__
---
_
__.-_--_-_11_1_
28
managing
directors
rushed
to
Italy.
In
the
end,
however,
the
greatly
increased
cost
of
the
technology
led
Nissan
to
abandon
its
plans
to
produce
polypropylene
(Nissan Kagaku,
1969).
Sumitomo
wanted
to
negotiate
a
low
cost
agreement
that
would
cover
only patent
rights,
but
Montecatini
insisted
that
Sumitomo
accept
the
same
terms
as
Mitsui and
Mitsubishi
(Morikawa,
1976).
Sumitomo
also
had
to
convince
the
government
that
Japan
would need
more
polypropylene
capacity
than
Mitsui
and
Mitsubishi
could provide.
Some
months
later
MITI revised
its
estimates
for
polypropylene
demand
and
Sumitomo
signed
a
technology
import
agreement
in
December.
The
agreement
was
approved
by
the
government
in
January
1961
(Sumitomo Kagaku,
1981).
Nissan had
dropped
out
of
the
race,
but
another
firm,
Shin
Nihon
Chisso Fertilize
(now
Chisso),
found
a
new
source
of
polypropylene
technology,
a
joint
venture
of
Sun
Oil
and
American
Viscose.
In
May
1960
Chisso
submitted
a
contract
for
this
technology
to
MITI
for
approval.
This
agreement
was
approved
the
same
day
as
Sumitomo's
(Arisawa and
Nakayama,
1973;
Mitsubishi
Yuka,
1988).
Production
of
polypropylene
was
begun
in
1962.
The
product
was
successful
in
many
applications,
but ironically
not
in
textiles
(Nissan
Kagaku,
1969).
In
the
case
of
the
BOF
technology MITI intervention
seems
to
have
reduced
costs
for the
Japanese
while
in the
case
of
polypropylene
it
seems
to
have raised
them.
Both
-Ca--
29
involved technologies
that
were
considered
crucial
to
industries
that
were
themselves
considered
strategic.
What
accounts
for
the
difference
between
the two
cases?
And
which
was
more
typical?
It
might
be
wondered
if
the
historically
close
relations
between
the
steel
industry and government
in
Japan
was
a
factor.
Yawata
Steel
and
Fuji
Steel,
the
two
leading
Japanese
steelmakers
at
the
time
of
the
basic
oxygen
furnace
agreement
had
both
been
parts
of
a
semi-governmental
company
until
1950
(Yonekura,
1994).
There
seems,
however,
to
have
been
no
pattern
of
cooperation regarding technology
in
the
steel
industry
and
no
pattern
of
an
inability
to
cooperate
in
the
petrochemical
and textile
industries.
Managers
involved
in
importing
the
basic
oxygen technology
described
intense
and sometimes
bitter
rivalry between
the
firms
(Lynn, 1982).
On
the
other
hand
there
were
episodes
of
cooperation
to
mutual
benefit
in
buying
foreign
technology agreements
by
firms
in
both
the
petrochemical and
textile industries.
Sumitomo
Chemicals
and
Mitsui
Petrochemical,
for
example,
cooperated
in
1956
to
get
ethylene
technology
at
a
lower
price
from
Stone
&
Webster
of
the U.S.
(Kudo,
1990).
Toyo
Rayon
and
Teijin
cooperated
to
negotiate
a
lower
price
for
polyester
technology
from
England's
ICI
(Nikkan
Kogyo
Shimbun,
1984).
One
difference
between
the
BOF
and polypropylene
cases
is
that
while
only
about
half
a
dozen
Japanese
firms,
all
of
them
steelmakers,
had
an interest
in
introducing
the
basic
_______1____1_·___^C*
__el_·___1_1^1______
30
oxygen
furnace.
Some
twenty-five companies
were
interested
in
importing
polypropylene
technology.
The
problems
of
coordination
in
the
latter
case can
readily
be imagined.
Sheer
numbers
of
Japanese
firms
interested
in
technology,
however,
did
not
in
themselves
always
keep MITI
from
playing
a
useful
coordinating
role.
MITI
was
able, for
example,
to
organize
the
more
than
thirty
diverse
firms
that
bought
television receiver
production
technology
from
RCA
into
a
group
that
successfully
lowered royalties
for
this
technology
(MITI,
1990).
It
may
be
that
a
more
important
difference
between
the
BOF
and
polypropylene
technologies
was
that
while
the
BOF
was
a
technology
to
make
an
existing product
by
incumbent
producers
at
a
lower
cost,
the
polypropylene
process
was
a
technology
to
make
a
new
product
in
an
industry
that
could
only
support
a
few
producers. There
were
on-going plans
to
upgrade
and
expand steelmaking
capacity.
The
BOF
allowed
this
to
be done
at
lower
cost.
It
was
in
the
interest
of
the
firms
to
import
the
technology,
and
it
was
in
the
interest
of
MITI
that
they
all
do
so.
The
firms
hoping
to
import
the
polypropylene
technology, however,
planned
to
use
the
technology
to
enter
a
new
industry
in
which minimum
economic
production
scales
and
investment
costs
were
very
high.
If
too
many
firms
entered
the
industry,
many would
fail
and
the
resources
they
had
invested
in
it
would
be
wasted.
Thus
MITI
wanted
to
prevent most
of
the
firm
from
importing
the
technology,
and
~~~---
·CI~~~~~~~~~~a
a
r
--·: ·~~~~~~~~~~~~~_-
--
___
31
thus
MITI's policies were
in
direct conflict
with
what
most
of
the
firms
wanted
to do.
The
firms
tried
to
evade
MITI's
guidance
in
the
apparent
hope
that
something
would
work
out.
It
would
take
a
much
larger
review
of
cases
than
this
to
establish
authoritatively
which
pattern,
that
of
the
basic
oxygen
furnace
or
that
of
polypropylene,
was
more
typical.
The
reasoning
outlined
here,
however,
suggests
the
not
surprising
conclusion
that
MITI
was
most
likely
to
succeed
when
the
interests
of
both
government and most
of
the
firms
seeking
a
technology were
in
accord.
When MITI
sought
to
keep
powerful
firms out
of
an
industry
based
on
questionable projections
of
demand
it
ran
into
difficulties.
This seems
to
have
been
a
problem
MITI
frequently
encountered
in
the
petrochemical industry
(Itami,
1991),
but
one that
has
not
been
much
noted
in
other
industries.
The
"Well-known" Sony
Transistor
Case
Substantial
attention
has
been
paid
to
the
possibility
that
government
involvement
may
have
reduced,
or
at
least
slowed down technology transfer
to
Japan.
Those skeptical
of
a
beneficial
role
having
been
played
by
MITI
most
often
cite
MITI's
initial
refusal
to
give Sony
a
license
to
import
the
transistor.
Most
cite
Trezise and
Suzuki
(1976)
as
their
only
source
for this
case
(e.g.
Goto,
1993a,
1993b;
Kosai,
1989;
Noble,
1989)
As
Trezise and
Suzuki
(1976:
798)
describe
the
case:
11_1 1_ 1__111 ~~~1 1~_1_1~___
___--1-____
_---
-____II___~
32
The
amount
of
net
benefit
contributed
by
[MITI's]
control
over
the
import
of
technology
to
economic
growth
may
be
open
to
argument.
The
Sony
Corporation,
for
example,
had
to
wait
almost
two
years
after
1952
to
get
approval
to
import
the
transistor technology
that
it
subsequently
applied
so
successfully
to
radio
manufacture
--
the
delay
caused
by
a
minor
MITI
official
who
had
concluded
that this
then
small
company
lacked
the
skills
to
develop
an
untried
technology.
Similar
deals
--
and
an
occasional
failure
to
complete
a
deal
--
were
inevitable.
There
was,
in
other
words,
a
price
for
the
government's
intervention,
and
it
may
have
been
a
substantial offset
to
the
gains
derived
from
it.
One
might
speculate,
based
on
this
anecdote,
about
how
many
potential
Sonys
were ruined
by
thick-headed
MITI
bureaucrats.
Or
how many
technologies
were choked
to
death
at
birth
by red
tape.
As
Okimoto
(1989:
65)
puts
it:
"Imagine
the
enormous
opportunity
costs
to
the
Japanese
electronics
industry
if
Tokyo
Tsushin
[Sony]
had
not
gone
ahead
to
sign
the
transistor patent
agreement,
which
it
presented
to
MITI
as
a
fait
accompli."
Three
points
need
to
be
made
about
the
Sony
case.
First,
although
the
case
is
generally characterized
as
"well-known,"
it
has
not
been described
in
detail
in
the
literature
on
industrial
policy. Trezise
and
Suzuki's
complete
description
of
the
case
is
given above
(Trezise
and
Suzuki
themselves
cite
interviews
with
high-ranking
(but
unidentified) Sony officials
and
an
unpublished paper
by
Ibuka,
'then
chief
executive
officer
of Sony).
Secondly,
the
Trezise/Suzuki
account
is
misleading, most importantly
there
was
nowhere
near
a
two
year
delay.
And
third,
Sony
was
not
quite
so
bravely
defiant
of
MITI
as
Okimoto
suggests.
The
agreement
it
signed
with
Western
Electric
was
contingent
on
MITI
approval
(Nakagawa,
1981),
a
not
uncommon practice
·-- ---- ---·· -
33
(recall
our
discussion
of
the
polypropylene
case,
or
note
the
several
cases
described
by
Kubo,
1990).
Here
is
a
more
extended
version
of
what
happened, based
on
published
interviews
with
Ibuka
(Aida,
1991;
Ibuka,
1992;
Kojima,
1993).
Apparently
if
there
is
a
MITI
side
to
the
story,
it
has
never
been published.
The
transistor was
invented
at
Western
Electric
by
Shockley and
others
in
1948.
Ibuka
says
he
read
about
the
new
technology
in
Time
or
Newsweek
at the
time,
but
didn't
regard
it
as
having
much
commercial
value. Ibuka
saw
little
reason
to
keep
track
of
the
progress
of
the
transistor
technology.
Some
others
in
Japan did
maintain
an
interest
in
the
transistor. The
Electronic
Communications Research
Laboratory,
a
government
research
laboratory
that later
became part
of
NTT.
and
some
private
firms
began
research
on
transistors
in
1949
(Shinko
Kyokai,
1988;
Aida,
1991).
Sony's
interest
in
the
transistor
developed
during
a
trip
Ibuka
made
to
the
United
States
in
March
to
May
1952.
Ibuka
was
hoping
to
develop
a
sense
of
the
potential
U.S.
market
for
tape
recorders
recently
developed
by
Sony.
He
was
disappointed
in
what
he
found,
but
while
in
the
U.S.
received
a
letter
from an
American
friend
in
Japan.
The
letter
mentioned
that
Western
Electric
was
releasing
its
transistor patents
and
suggested
that
Sony
should
be
interested
in
this
new
technology.
As
it
happened
Ibuka
was
looking
for
a
new
challenge
for
his
technical
people
now
that
they
had
successfully
commercialized
the
tape
recorder
_ _ LI
____._._..
-------
(111-------··sl-X-----^·----
-1
34
and
so
was
particularly
receptive
to
the
idea
of
introducing
a
new
technology.
Ibuka was
unable
to
get
an
appointment
with
the
head
of
Western
Electric's
patent
division
while
in
the
United
States,
but
a
Japanese
expatriate
offered
to
continue
efforts
on
Sony's
behalf.
Ibuka
returned
to
Japan,
discussed
the
patent
with
Akio Morita
and
other
Sony
officials.
Ibuka
and
Morita
persuaded
the
others
to
begin
serious efforts
on
the
transistor.
Meanwhile,
Sony's
negotiator
in
the
United
States
(a
sometime stockbroker
and
agent
for
the trading
firm
Nissho)
continued
to
approach
Western
Electric.
Western
Electric,
perhaps
not
surprisingly,
was
initially
skeptical
about
dealing
with
a
company
it
knew
nothing
about.
Ibuka
visited
MITI
to
indicate
Sony's
intention
to
buy
patent
rights
to
the
transistor.
MITI's reaction
was
that
it
was
ridiculous
to
consider
that
an
unknown
company
like
Sony
with
no
experience
producing
vacuum
tubes could
commercialize
the
transistor. MITI's
policy
regarding
the
import
of
transistor technology favored
having
large
firms
such
as
Hitachi
and
Toshiba
import not
only
the
patent
rights
from
Western
Electric,
but
also
related
know-how
and
assistance
from
RCA.
It
seemed
unlikely
that
a
small
firm
could succeed
in
commercializing
the
technology
with
no
guidance
except
patent
rights.
Nonetheless,
Sony's
agent
in
the
U.S.
continued
his
discussions
with Western
Electric.
It
is
important
to
note
that
Sony
did
not
have
an
agreement
yet
35
at this time,
nor
did
it
feel
that
MITI's
early
negative
reaction
was
reason
to
stop
seeking
one.
In
the
summer
of
1953
Sony's
negotiator
in
the
United
States
finally
persuaded Western
Electric
that
Sony
was
a
worthy
licensee
for the
transistor.
Western
Electric
asked
Sony
to
send someone
to
sign
a
license agreement.
Akio
Morita
was
planning
a
trip
to
Europe,
and
arranged
to
stop
in
the
United
States
where
he
signed
the
agreement
contingent
on
MITI's
approval. He
returned
to
Japan
in
October
1953.
When
Morita
reported
the
contingent agreement
to
MITI,
he was
rebuked
for
not
clearing
the
agreement with
MITI
before
signing
it.
This
reaction
was
obviously
a
setback,
but
was
not
seen
as
a
fatal
one.
A
Sony
research group
continued
to
develop
the
technology using
references
provided by Western
Electric.
At
the
end
of 1953
MITI
reassigned
its
personnel
including
those
in
the
electric/electronics
section. Sony's
transistor
agreement
was
approved
on
February
2,
1954.
Other
Japanese
firms
were
later
approved
to
import
the
technology:
Toshiba
in
June
1954,
Mitsubishi
Electric
in
October
1954,
and
Kobe Kogyo
(later
part
of
Fujitsu)
in
November
1954.
The
world's
first
transistor
radio
was
introduced
by
Regency
of
the U.S.
in
December
1954.
Sony
was
second,
about
six
months
later.
Sony
might have
been
first
according
to
Ibuka,
if
MITI
had
supported
Sony's
efforts
to
license
the
transistor.
--------·---·I
I~~..·--""'".-"`.-
..
T-l--`-'..
·- -··I-F----·---
a
36
It
can be seen from
this
that
the
Trezise and
Suzuki
claim
that
MITI intransigence
delayed
Sony
by
nearly
two
years
is
greatly
inflated.
Two
years
before
the
agreement
was
approved
Sony
had
no
interest
in
the
transistor.
Indeed,
Sony did
not
even
have
a
contingency
agreement
to
take
to
MITI
until
four
or five
months
before
MITI
approved
the
agreement.
Conceivably, strong
support from
MITI might
have
caused
Western
Electric
to
act
more
quickly,
or
might
have
encouraged
Sony
to
begin
its
development
work
on
the
transistor
a
few
months
earlier.
This,
however,
is
mere
speculation
and
still
does
not
add
up
to
a
two
year
delay.
It
should
also
be
noted
that
though
the
Sony story
has
been
taken
as
showing
MITI
discrimination
against
small
entrepreneurial
firms
(Trezise
and
Suzuki,
1976;
Okimoto,
1989),
Sony
received
approval
of
its
technology
import
ahead
of
the
supposedly
favored
firms
such
as
Toshiba
and
Hitachi.
While
MITI's disparagement
of
Sony
must have
been
painful
and
presumably
wasteful
of
scarce
managerial
time,
it
ultimately
did
not
appear
to
make
much
difference.
On
the
issue
of
favoritism
it
should
be
noted
that
the
technology
import
agreements
of
large
well-connected
firms
were
also
delayed
on
occasion
by
MITI.
A
senior
Sumitomo
Chemical
manager
involved
in
the
competition
to
import
polypropylene
technology complained
that
MITI
had
favored
Mitsui
(Morikawa,
1976).
Nonetheless,
a
few
years
earlier,
in
1955,
Mitsui
Chemical
also
had
an
important
agreement
delayed
by
MITI.
This was
for
the
import
of
the
·I
____
37
polyethylene
technology
that
resulted
in
Mitsui's entry
into
the
general
petrochemicals
industry.
Mitsui signed
an
agreement
for
the
Ziegler
Process
ethylene
technology
on
January
6, 1955.
The
agreement
was
not
approved
until
November.
In
contrast,
when
Sumitomo,
Mitsubishi
and Nippon
Petrochemicals imported
polyethylene
technologies
in the
late
1950s,
the
approval
process
was
accomplished
within
two
to
four
months
(Kudo,
1990).
In
retrospect
MITI's caution
about
the
Mitsui Ziegler
Process
agreement
seems
to
have
been
justified.
While
the
Mitsubishi,
Sumitomo
and
Nippon
Petrochemicals
start-ups
went
smoothly,
that
of
Mitsui
did
not.
Mitsui's agreement
called
for
payment
of $1.2
million
dollars
plus
royalties,
not
including
know-how. All
Mitsui was
getting
in
addition
to
the
rights
to
use
the
Ziegler
patents
was
two
notebooks
of
laboratory
data.
MITI
hesitated
to
approve
the
contract
because
know-how and
other
assistance
was
not included.
MITI's misgivings were borne
out:
early
stage
losses
to
Mitsui
due
to
start
up problems
amounted
to
some
250
million
yen
per
month
and
the
company
required new
infusions
of
capital.
Mitsui
finally
had
to
contract
with
German
chemical
firm
for
intensive
technical
assistance.
An opportunity
to
favor
established
firms
clearly
occurred
with
the
import
of
television
technology.
MITI
could
have
used
a
"national
champion"
strategy
to
nurture
a
strong
domestic
television
production
industry
by
closing
the
market
to
weaker
firms.
Instead
it
allowed
more
than
·I
------
__1___
-
____-_l______
11_1
_111
38
thirty
different
companies
to
import
the
technology
and
enter
the
industry.
Many
of
these
were
marginal
firms,
and
of
course
most
did
not long
survive
as
independent
producers
of
television
sets.
The
point,
however,
is
that
MITI
seemed
perfectly willing
to
let
the
market
choose amongst
them
(MITI,
1990).
Conclusions
This
review
of
MITI experiences
in
approving technology
imports
suggests several points:
First
of
all,
images
of
MITI
as
having unlimited powers
in
regulating technology
imports
seem
vastly
overdrawn. The
Ministry
did
not
generally
attempt
to
identify technologies
for
Japanese
firms
to
import,
but rather
played
the
more
passive
role
of
evaluating
agreements
brought
to it
by
the
firms.
The
initiative
lie
with
the
private
sector.
The
Ministry
could
refuse
to
approve
agreements,
but
in
fact
approved
more
than
90%
of
them.
It
also
seems
incorrect
to
depict
MITI
as
having
no
power
in
controlling technology
imports.
As
we have
seen,
the
bureaucratic
apparatus
was
in
place
to
handle
the
numbers
of
agreements
approved
in
the
1950s
and
perhaps
through
the
early
1960s.
The
power
was
often
exercised.
Small
firms
such
as
Sony,
medium
sized
firms
such
as
Nissan
Chemical,
and
even
old
Zaibatsu
firms
such
as
Mitsui
Chemicals and
Sumitomo
Chemicals
all
had
technology
imports
-·u
--
-I----
· ..
___
39
blocked
or
at
least
delayed
by
the
Ministry.
This
listing
itself
also
calls
into
question
the
assumption
that there
was
a
systematic
bias
in
favor
of
old
and
powerful
firms.
Similarly,
it
does
not
seem
fair
to
characterize
the
government's involvement
as
generally
restricting
competition.
This
apparently
was
the
intent
in
the
somewhat
atypical
case
of
polypropylene,
but
the
intent was
not
realized.
Often
MITI's
actions
seem
to
have
been
aimed
at
maintaining
a
certain
level
of
competition.
This seems
to
have
been
the
case, for
example,
when
MITI
blocked
the
purchase
of
Orlon technology
by
Toyo
Rayon
out
of
concern
that
this
technology coupled
with
other
technologies
controlled
by
Toyo
Rayon
would
give
the
company
too
much
market
power
(Morikawa,
1976).
The
issue
of
whether
government
control
over
technology
imports
was
generally
beneficial
to
the
Japanese
economy
is
controversial.
This
limited
review
suggests
that
it
was
by
and
large
beneficial
in
the
Japanese context
of
the
1950s
and
early
1960s.
It
was
beneficial
in
the
following
ways:
1.
It
made
selling
technology
to
Japan
more
attractive
to
foreign
firms
at
a
time
when
Japan
was
largely
isolated
from
the
international
economy
and
Japanese
firms
were
not
well
known.
2.
It
compensated,
in
part,
for
the
relative
lack
of
experience
of
Japanese
firms
in
international
business.
The
government's
records
of
payments and
other
conditions
provided
benchmarks
for
agreements.
At
the time,
it
should
_
_
_
_~~~_~~~_1_1~~~~~~_
~~___~~~~~_1_*
_1__1__
_~~~~~~_
_
_
_ _·--------
_ __
40
be recalled,
travel
outside
Japan
was
difficult,
many
prewar
ties
with
foreign
firms
had been disrupted
by
the
war,
and
the
general trading companies
(which
had
played
a major
role
in
prewar technology
transfers)
had been
weakened
by
Occupation
reforms.
3.
It
provided a
venue,
at
least,
for
coordinating
the
approaches
of
Japanese
firms
to
foreign
suppliers
of
technology.
At
times
at
least
this
seems
to
have
reduced
the
price
of
technology
to
Japanese.
This
point
should
not
be
overstated, however. The case
of
polypropylene
suggests
its
limitations.
Nor
was
government
involvement
the
only
way
in
which
firms
could
coordinate
approaches
to
foreign
suppliers
of
technology.
This
conclusion
that
the
controls
were
favorable does
not
suggest
that
such
controls
are
more
generally
desirable.
Japan
in
the
1950s was
a
country
with high
technical
skills
that
had been
cut off
from
technology
flows
and
from
normal
commercial
relationships
for
an
extended
period
of
time
due
to
World
War
II.
The
country suffered
from
persistent
shortages
of
foreign exchange.
The
numbers
of
relevant
technologies
to
import
was
much
smaller
than
would
be
true
now.
The
conclusion
also
needs
to
be
tempered
by
the
realization
that
other
factors
also
contributed
to
the
ability
of
Japanese
firms
to
get
the
foreign
technologies
they
needed under
favorable
terms.
Kubo
(1990), for
example,
notes
that
in the
petrochemical industry
there
was
often
~~-
-------
---
-----
·-------
~ ~ ~ ~ ~ ~ ~ ~ ~
-- --
41
intense
competition
on
the
part
of
the
sellers
of
technology
to
transfer
technology
to
Japan.
This
may
have
been
true
in
some
other industries
as
well.
I
have
noted
elsewhere
the
role
of
non-government
organizations such
as
trade
associations and
trading companies
in
facilitating
the
search
for
technologies
by
Japanese
firms
(Lynn,
1982;
Lynn
and McKeown,
1988).
The
Japanese
firms
themselves
put
a
high
priority
on
collecting
technical
information
overseas.
Foreign
sellers
often
underestimated
the
potential
growth
of
the
Japanese market
and
the
ability
of
Japanese
firms
to
commercialize
technology, and
thus
may
have
underpriced
their
technologies. Finally,
the
world
environment
for
commercial
technology
transfer
was
unusually
favorable.
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Yutaka
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Marie
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Hiromi
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Showa
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Nihon
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Shinbunsha
Arisawa,
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Senao
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Kaaaku
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Nipo
Sha.
Friedman,
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...
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______1__1_1____1_____·-··^---CI
~ ------- ~ _ _I~ L··l
·~__·-_ -- ---_
-~1-_
1
42
Henderson,
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