Extracts January 1946 [1]

REPORT ON VISIT TO JAPAN WITH THE FAR EASTERN ADVISORY COMMISSION

ECONOMIC

Introduction
1. Japan is now an economy of extreme scarcity. This has two
important consequences for administration: it makes certain
controls necessary at a time when the Allied Powers wish to
encourage personal freedom, and it reduces the margin of error
that can be taken for granted in calculating lines of policy.

2. An economy of scarcity involves severe restrictions on the
individual's right to purchase on the open market, to accept
employment, to travel freely, or even to advocate courses of
action. A police force is necessary to enforce these controls ...

The Japanese Government professes itself unable to stamp out the
black market; first because it can no longer allow the remaining
police force to employ the drastic methods of the past to enforce
regulations, and secondly because it claims that Allied emphasis
in propaganda on the freedom of the individual, without much
reference to his responsibilities, has encouraged a wide-spread
belief that there is something 'democratic' in avoiding observance
of government controls. The dilemma between encouraging personal
freedom and imposing government controls, which has appeared in a
lesser form in the democratic countries during the war, enters
most economic and many political problems in Japan today.

3. Very little margin can be safely allowed for error in
calculations. For example, one of the more crucial matters is the
food situation. The Japanese Government and a number of senior US
Army officers believe that Japan will face starvation on a large
scale within the next few months if food is not imported. others
dispute this. Whatever the position, it will be touch and go, and
even a comparatively small error can mean many deaths. Where basic
commodities like food, fuel, and clothing are close to bedrock,
and where accurate statistics for them do not exist, one cannot
but be conscious of the grave consequences that will follow a
miscalculation. Again, the scope for experimentation in social
reform is reduced.

While it is desirable to bring about as many reforms as possible
as quickly as possible, we must be careful not to impose so many
at once that the economic machine or essential parts of it comes
to a standstill, either because key Japanese refuse to go any
further in accepting SCAP orders, or because the new system has
become incomprehensible to them. This is not an argument for
avoiding reforms, but rather for careful timing.

4. The possibility of a collapse of Japanese Government must
always be kept in mind. For a few days in January, 1946, it seemed
possible that Baron Shidehara, would be unable to hold a Cabinet
together and that a successor might not be found. The absence of a
Japanese Government would alter the whole structure of the
occupation by making it necessary to introduce some degree of
direct military government, with the consequent need for more
occupation troops and better-trained experts to involve themselves
in the enormous task of governing a foreign country with little
knowledge even of the language and with little co-operation from
the inhabitants.

[matter omitted]

7. ... American officers at SCAP mostly believe that there is no
serious deliberate falsification of statistics and data by the
Japanese and that the many inaccuracies are the results of
inefficiency or misunderstanding. The chief item where deliberate
falsification would be profitable at present is stocks of
commodities, raw materials, or equipment. Understatement of food
Stocks, with a consequent implication of starvation, might
stimulate the Allied Powers to send food to Japan. The food
shortage has become an obsession with the Japanese, and
exaggeration of the position by them is certainly occurring.

Failure to specify holdings of machinery offers an opportunity to
spare those not disclosed from being seized as reparations.

Concealment has occurred. Machines have been taken from factories
even during the past month and hidden in smaller factories or
caves. It is hoped to prevent this happening in future by taking a
precise inventory of all machine tools as soon as the labour and
organization required can be assembled, but lack of experienced
men, Allied or Japanese, is the stumbling block. Few more
important tasks await SCAP than the institution of an adequate
statistical system in Japan, and until it is done, basic decisions
will have to be made, as at present, on inadequate and often false
data.

[matter omitted]

12. Finally, it should be observed that many of the problems
confronting Japan and SCAP today are those which trouble any
modern community-the control of big business, the struggle between
free enterprise and government control, and rural indebtedness. It
is unreasonable to expect the Supreme Commander to pull ready-made
solutions out of his hat. In many cases no permanent solution
exists, since continuous social change requires continuous social
adjustment. But all these problems, no matter how familiar they
may seem to Western eyes, have certain peculiar twists given by
the oriental, religious and historical setting. The agrarian
problem, for example, is basically coloured by Japan's recent
emergence from a type of feudalism. The Zaibatsu is not simply a
problem of monopoly, but is complicated by semi-feudal family
loyalties and by a devotion to nationalistic expansion going back
to the Meiji period. State control is not the impersonal thing
that comes to Western minds steeped in parliamentary tradition,
but implies a personal devotion to a myth-enshrouded Emperor. In
short, economic reform must be accompanied by basic social reform.

[matter omitted]

Implementation of Basic Policy

30. A brief survey of the general economic position and the most
pressing problems having been given, it is now proposed to take
the statement of US basic policy point by point, and examine how
far its economic provisions have been carried out.

Economic Disarmament

[matter omitted]

35. The best guarantee of permanent economic disarmament of Japan
is the restriction of her sovereignty to the four main islands.

This effectively makes her dependent on the rest of the world for
such vital materials as petroleum, rubber, tin, lead, tungsten,
molybdenum, phosphate, and salt. In the absence of assistance from
another Power, this restriction alone might be an effective
barrier to further aggression on Japan's part. Allied policy,
however, will go a step further and try to destroy or remove war-
making potential that still remains on the Home islands. Three
points of warning need to be uttered here. First, many industries
which formed a basic part of the Japanese war machine also are
essential to the peace-time economy, and it will be very difficult
to root out the heavy industries and allied branches without, at
the same time, either causing the Japanese economy to collapse or
making it necessary for the rest of the world permanently to send
more exports to Japan than she can pay for. This does not mean
that an attempt to disarm Japan economically should not be made,
or that good results cannot be achieved, but it is a warning not
to trust too completely to this as a safeguard. We must be
reconciled to the fact that some heavy industry, some chemical
works, some shipbuilding will have to be left. We must also look
forward to a steady whittling away at Allied conferences of any
stern initial principle, as exceptions are gradually admitted in
the various industries. Secondly, over the next few years there
will be a relaxation in Allied willingness to enforce a hard peace
against Japan. The pressure at home to reduce the forces and
expenditure involved, and even a growth in public sympathy for a
defeated foe, can be expected to push towards a relaxation of
controls. The most perfect controls in the world are useless if
the will to apply them does not exist ... Finally, it is
impossible to forecast accurately what new forms of armament
another war would call for. The atomic bomb, coupled with the
rocket and possibly still undevised weapons, might render
laughable any forms of control selected. Entirely new industries
might be catapulted to the fore as a basis for war-making.

Particularly is that so when we plan, not in terms of years or
even decades, but of fifty and a hundred years. The conclusion to
be drawn is that, though the physical removal or conversion of
plant can play an essential part, the best hope of safety is a
complete change in the outlook and desires of the Japanese people.

The Allies' aim must be so to reform the Japanese that they will
never again wish to go to war or, taking the most pessimistic
view, that if they do go to war they will wage it in a more humane
and civilized manner. One of the chief objects sought last year by
the Australian Delegation to the Far Eastern Advisory Commission
was an amendment of the US statement of basic policy so that the
promotion of a peaceful and democratic Japan became a positive
obligation of the Supreme Commander instead of merely a
consummation devoutly to be hoped for. [2] This point is worth
emphasizing here, even in an economic paper, because of a growing
attitude at SCAP to feel that the social reform of Japan is of
only secondary importance, and that the Allied occupation troops
could withdraw fairly soon and with the aid of naval patrols and a
fleet of bombers could effectively put an end to any renewed
attempts at rearming, without having to bother now about making
Japan democratic. This belief can be expected to grow with the
increasing clamour to 'bring the boys back home'. Against this,
the Australian attitude has been that the democratic reform of
Japan is as important an element in disarmament as the destruction
of arms or factories.

[matter omitted] [3]