A STUDY on JAPAN's REACTION to the 1973 OIL CRISIS By
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A STUDY ON JAPAN'S REACTION TO THE 1973 OIL CRISIS By ATSUSHI YAMAKOSHI B.A., Waseda University, 1981 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS in THE FACULTY OF GRADUATE STUDIES (Department of Interdisciplinary Studies) (Commerce/Economics/Political Science) We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA June 1986 (c) Atsushi Yamakoshi, 1986 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department Of Interdisciplinary Studies The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 Date June 1986 )E-6 (3/81) Abstract The object of this dissertation is to investigate Japan's reaction to the 1973 oil crisis in order to answer two major questions. First, why and how was Japan able to recover from the 1973 oil crisis? Secondly, what was distinctive about Japan's reaction to the oil crisis as compared with the reactions of other countries? Chapter One provides a general review of the 1973 oil crisis. It also discusses the focus and the basic methodology of this dissertation. Chapter Two examines the political aspects of Japan's reaction to the oil crisis. At the beginning of the 1970's, the Japanese political scene was in a state of historical transition mainly because the. opinions of Japanese people were becoming diversified after the accomplishment of extensive economic growth. The 1973 oil crisis reflected the differences of opinion in the government and the conflict of interests among industrial sectors. This chapter pays special attention to Japan's bureaucracy in facing the oil crisis. Chapter Three discusses the economic aspects of Japan's reaction to the oil crisis. The oil crisis created great confusion within the Japanese economy because it occurred at the time of the inflationary situation after the "Nixon Shock" in 1971. However, Japan recovered from the crisis by changing its industrial structure. The oil crisis elucidated the vulnerability, efficiency and flexibility of the i i Japanese economy. Chapter Four deals with the business aspects of Japan's reaction. Japanese business leaders tried to influence the decision-making process of the Japanese government through the activities of four major business organizations: Keidanren, Nissho, Nikkeiren and Doyukai. Companies made efforts to rationalize their production process by decreasing intermediate inputs. These rationalization efforts decreased demand for the materials produced by oil-reliant industries and accelerated the structural change in Japanese industry. The cooperative relations between the government and business and between management and labour moderated the friction caused by this structural change. Chapter Five offers the major findings of the preceding chapters. Based on those findings, it concludes that Japan's recovery from the 1973 oil crisis was accomplished by the voluntary commitment of various social factions to solving the problems caused by the crisis rather than by the consensual efforts led by the government. This voluntary commitment is recognized as the most distinctive feature in the Japanese reaction to the oil crisis. Table of Contents CHAPTER ONE THE NATURE OF THIS THESIS 1 1. WHAT WAS THE 1973 OIL CRISIS? 2 2. THE FOCUS OF THIS THESIS 6 3. TABLES 8 CHAPTER TWO THE POLITICAL ASPECTS OF JAPAN'S REACTION TO THE 1973 OIL CRISIS 11 1. THE JAPANESE GOVERNMENT SYSTEM AND THE POLITICAL SITUATION IN THE EARLY 1970'S 13 2. THE ACTIONS TAKEN BY THE GOVERNMENT FACING THE CRISIS 19 3. THE CHARACTERISTICS OF THE JAPANESE POLITICAL REACTION TO THE OIL CRISIS 32 4. TABLES 39 CHAPTER THREE THE ECONOMIC ASPECTS OF JAPAN'S REACTION TO THE 1973 OIL CRISIS 42 1. THE JAPANESE ECONOMIC STRUCTURE 44 2. THE IMPACTS OF THE 1973 OIL CRISIS AND JAPAN'S ECONOMIC REACTION 54 3. THE CHARACTERISTICS OF THE JAPANESE ECONOMIC REACTION TO THE OIL CRISIS 67 4. TABLES 70 CHAPTER FOUR THE BUSINESS ASPECTS OF JAPAN'S REACTION TO THE 1973 OIL CRISIS 85 1. THE POLITICAL REACTION OF JAPANESE BUSINESS TO THE OIL CRISIS 86 2. THE ECONOMIC REACTION OF JAPANESE BUSINESS TO THE OIL CRISIS 94 3. THE CHARACTERISTICS OF THE JAPANESE BUSINESS REACTION TO THE OIL CRISIS 98 4. TABLES 104 iv CHAPTER FIVE CONCLUSION 106 BIBLIOGRAPHY 113 APPENDIX A JAPANESE VIEW ON CANADA'S REACTION TO THE 1973 OIL CRISIS 116 1. THE POLITICAL ASPECTS 116 2. THE ECONOMIC ASPECTS 124 3. THE CHARACTERISTICS OF THE CANADIAN REACTION TO THE OIL CRISIS 127 4. TABLES 132 v List of Tables (Chapter One) 1- 1. Structure of Energy Dependence of Major Industrial Countries 8 1-2. A Basic Concept 9 1- 3. Some Aspects of Japan's Reaction to the 1973 Oil Crisis 10 (Chapter Two) 2- 1. The Number of Seats in the Diet by Japanese Political Parties 39 2- 2. Major Members of Tanaka's Cabinet 40 2- 3. Prime Ministers of Japan ( 1 946-1 985) 41 (Chapter Three) 3- 1. Economic Growth Rates of Major Countries 70 3- 2. Comparison of Targets set by the National Income- Doubling Plan and Actual Economic Performance 71 3- 3. Household Saving Rates of Major Countries 73 3- 4. The Growth of Japanese Foreign Trade 74 3- 5. Major Japanese Trade Items 75 3- 6. The Shift in the Japanese Postwar Industrial Structure 76 3- 7. The Shift in Japanese Energy Supply 77 3- 8. Smithsonian Rates of Major Currencies 78 3- 9. U.S. International Liquidity Position 78 3-10. Change in Oil Prices 79 3-11. Major Japanese Economic Indices (1972-1975) 79 3-12. Growth of Real GNP in Seven Industrial Countries and the OECD 80 3-13. Wholesale Price Indices: International Comparison ..81 3-14. Balance of Internationalv i Payments ." 82 3-15. Current Balances of OECD Countries 83 3- 16. Total Foreign Exchange Reserves of Major Industrial Countries and OPEC Countries 84 (Chapter Four) 4- 1. Changes in Intermediate Inputs in the Processing Industry 104 4- 2. Productivity Increase in the Processing Industry ..105 4- 3. The Ratio of Business Establishments Implementing Employment Adjustment 105 (Appendix) A- 1. Some Aspects of the Japanese and Canadian Reactions to the 1973 Oil Crisis 132 A- 2. Consumer Price Indices: International Comparison ..133 A- 3. Current Balances of Major Industrial Countries ....134 A- 4. Canadian Merchandise Trade 135 A- 5. Changes in Labour Costs and Profits per Unit of Output 136 A- 6. Production Shares by Sectors, Selected Years 1870-1 974 137 A- 7. Employment Shares by Economic Sector and Industry .138 A- 8. Foreign Ownership Control of Canadian Industry ....139 A- 9. Exploitable Oil Reserves in Canada 140 A-10. Provincial Shares in the Manufacturing Sector (1980) 141 A-11. The Top Ten Industrials ( 1983) 142; vii Acknowledgements Five people contributed significantly to the completion of this dissertation. They are Dr. Ilan B. Vertinsky, Dr. J. W. C. Tomlinson, Dr. Malcolm D. H. Smith, Dr. Peter N. Nemetz and, in particular, Dr. Terence G. McGee. I would like to thank them all. This study was made possible by financial support from the Institute of Asian Research of UBC, the federal government of Canada, and the Keidanren. I thank these organizations and appreciate Dr. McGee's cooperation in obtaining this support. I would also like to thank Dr. Frank C. Langdon. Special thanks to my Keidanren colleagues for helping me complete my two-year study at UBC successfully. Finally but most importantly I thank my parents for their encouragement and support. viii CHAPTER ONE THE NATURE OF THIS THESIS The world economy is currently facing increased political tension among industrialized countries, particularly given growing protectionism in the world trade system. It may be argued that Japan, the main target of criticism by European and North American countries because of its rapidly increasing exports and its "closed" market, is both the cause and victim of such increased tension.1 It is often argued that political tensions in the world economy increased mainly because Japan recovered from the two oil crises in the 1970's more successfully than other industrial countries. According to this argument, the cause of political tensions should be found in the way Japan 1The political tension surrounding Japan is symbolized by the phrase "trade friction." This friction can be classified into three major categories: Japanese exports, the Japanese market, and Japanese policy and economic structure. Topics concerning Japanese exports include the export of such products as textiles, steel, colour TV sets, automobiles, machine tools and electronics, and policy measures related to Japanese exports such as voluntary export restraint and local content proposals. Topics concerning the Japanese market include the market for such products as telecommunication equipment, beef and oranges as well as policy measures such as tariffs and non-tariff barriers (NTB). Topics concerning Japanese policy include agricultural policy, defense policy, industrial policy and the internationalization of the yen, and those concerning the Japanese economic structure include the distribution system and intra-group transactions. In addition to these topics, even such issues as Japanese culture and language sometimes become the topics of trade friction. 1 2 recovered from the oil crises and in how the Japanese recovery differed from that of other industrial countries. The purpose of this thesis is to investigate how Japan reacted to the oil crisis of 1973.