Copyright © 1997 Oxford University Press, Inc..
All rights reserved.
ISBN: 0-19-506916-1
Contents
Prologue.............................................................3
1. Japan: From Enemy to Ally, 1945-50................................7
2. The Korean War and the Peace with Japan, 1950-52.................31
3. United States-Japan Economic Cooperation, 1950-53................47
4. In the Shadow of the Occupation: Japan and the
United States, 1952-55...........................................62
5. China and Japan, 1952-60.........................................77
6. Southeast Asian Dominos and Japanese-American Trade, 1953-60.....96
7. Japanese-American Political Relations, 1954-58..................113
8. The Struggle to Revise the Security Treaty, 1957-60.............127
9. Politics and Security: The Treaty Crisis of 1960................143
10. The New Frontier in the Pacific................................163
11. The United States, Japan, and the Vietnam War, 1964-68.........184
12. The "Nixon Shocks" and the Transformation of
Japanese-American Relations, 1969-74...........................210
Epilogue--Altered States: From Cold War to New World Order.........245
Notes..............................................................261
Bibliography.......................................................297
Index..............................................................301
CHAPTER ONE
1 JAPAN: FROM ENEMY TO ALLY,
1945-50
In the spring of 1946, as Japanese diplomat Yoshida Shigeru formed his first postwar cabinet, he remarked to a friend that "history provides examples of winning by diplomacy after losing in war." As ambassador to London during the 1930s, Yoshida viewed with alarm Japan's aggression in Asia. The ruin later visited on his country seemed proof of the folly sewn by reckless militarism. In 1945, Yoshida joined those urging the emperor to negotiate an end to the war before a Soviet invasion or leftist revolution. Although this led to his arrest by the military police, it paid a handsome dividend when the Americans exempted him from the postwar purge.
Japan's postwar achievements, many of which can be credited to Yoshida, seemed proof of his aphorism. Between 1945 and 1950, Japan experienced what Occupation Commander General Douglas MacArthur called a "controlled revolution," the partial uprooting of political, economic, and social structures that had contributed to repression at home and aggression abroad. In retrospect, it is clear that many Occupation reforms changed less than their American sponsors hoped and that important aspects of the pre-1945 power structure continued to operate in the new Japan. During the two years after the end of the Pacific War, Japan seldom commanded attention among America's leading officials. Europe dominated foreign policy concerns, followed by the Near East and China, where General George C. Marshall tried, in vain, to mediate a civil war. Japan glowed dimly in the foreign policy firmament.
Testy relations between Douglas MacArthur and the Truman administration further complicated matters. Despite public praise lavished on the general by civilian and military leaders during the Second World War, many of these individuals privately disparaged him. Texas Democrat Tom Connally, who chaired the Senate Foreign Relations Committee, voiced a common concern in the summer of 1945 when he told Truman it would be a "big mistake" to appoint "Dugout Doug as Allied Commander in Chief" in Japan. MacArthur, he predicted, would use the post to "run against [Truman] in 1948."
Secretary of the Interior Harold Ickes also questioned the appointment, but believed that public pressure made it "inevitable" that "MacArthur should be cast for this role." Ickes imagined that the "man on horseback" would behave in Japan as he had in the Pacific, taking "every advantage of this dramatic situation to get himself spread all over the papers." Truman agreed, although he told Ickes that it was not really fair to "blame on him the appointment of MacArthur" as Occupation commander. Domestic politics ensured that he "couldn't do anything else." The root of the problem, Ickes thought, lay with Roosevelt, who made a "mistake in taking MacArthur away from the Philippines" in 1942. He should have been left "to clean up his own mess"--or the Japanese allowed to solve "the MacArthur problem." To keep the general out of Tokyo now would make a "martyr out of him and a candidate for president." He would, Truman lamented, "be a candidate anyway."
Americans arriving in Japan in August 1945 found a land of ruined cities, idle factories, and homeless refugees. One and one-half million soldiers had died, along with nearly a half million civilian victims of air raids. In a letter home, one GI described the eerie sensation of approaching Tokyo. Instead of seeing a great city, the closer in he drove, the more "everything seemed completely flat with destruction." The defeated nation had to feed and shelter not only current residents but seven million Japanese soldiers and civilians returning from China and Southeast Asia.
In a mark of despair, the ultranationalist East Asia League admonished its members to obey the Americans and "align themselves with world Jewry, which had now proved its invincibility by triumphing over Hitler." Six days after surrender, the Japanese government, fearful that "sex-starved" American Occupation troops would behave as Japanese forces often had abroad by raping every woman or girl in sight, recruited thousands of "comfort women" to slake the passions of foreign soldiers in official brothels. The prostitutes and war widows pressed into service were told that their mission "was to be a sexual dike to protect the chastity of Japanese women" and prevent pollution of the race.
As Supreme Commander for the Allied Powers, or SCAP--an acronym applied to himself as well as headquarters--MacArthur represented the victorious allies. A token number of allied troops served alongside the American garrison. To soothe British, Soviet, and Chinese irritation over being ignored, Washington created two Occupation oversight committees: the Far Eastern Commission and the Allied Council for Japan. Neither had the slightest influence on policy anytime during the next six years.
After accepting Japan's formal surrender aboard the battleship Missouri in Tokyo Bay on September 2, MacArthur set up his General Headquarters (GHQ) in the Dai Ichi Insurance Building, one of the few major structures left standing in central Tokyo. SCAP consisted of a dozen or so sections, corresponding to the Japanese cabinet and American army organization. Among the most important groups were an intelligence section that monitored both Japan and southern Korea, Government Section that oversaw political reform, and Economic and Scientific Section with broad economic policy authority. The respective heads of these sections, Generals Charles Willoughby, Courtney Whitney, and William Marquat, were members of the so-called Bataan gang, a circle of acolytes whose loyalty to MacArthur extended back to prewar Manila. At high tide in 1948, just over 3,000 Americans and a handful of foreign nationals served in SCAP. It relied heavily on the Japanese government for information and policy implementation.
As Occupation commander, MacArthur cut a figure at once ubiquitous and aloof. Labor expert Theodore Cohen recalled his surprise after arriving in Tokyo at how the local press seldom printed the name of any American other than MacArthur. SCAP censors discouraged Japanese newspapers from describing the actions of President Truman or his administration. "As far as the Japanese people were concerned," Cohen observed, a single individual had "displaced the United States Government."
During nearly six years in Tokyo, MacArthur followed a strict routine. Driven from his home in the former American ambassador's residence each morning at 10:30, he worked for several hours at the Dai Ichi Building before returning home for lunch and a nap. He repeated the journey each afternoon. MacArthur usually communicated with Japanese officials in writing and met few in person. Before the outbreak of the Korean War in June 1950, he left Tokyo only twice, to attend independence ceremonies in Manila and Seoul.
Neither then nor in retirement did he reveal many inner feelings about Japan. Once, in a casual remark to an aide in Tokyo he described the Japanese as a "brooding" people whose country had "an ominous quality" that put him on edge. He told an Australian colleague in 1948 that "as a matter of general principle," he advised dealing with Orientals by first "spitting in their eye." He compared the Japanese to "second-grade students" capable of absorbing advanced concepts only at a remedial pace. In 1951, MacArthur told a congressional inquiry that "measured by the standards of modern civilization," the Japanese "would be like a boy of twelve as compared with our development of forty-five years."
The Reform Period, 1945-47
The initial reform agenda represented a compromise between planners who believed a progressive Japanese government had been "highjacked" by militarists during the 1930s and those who insisted that deeply flawed political, social, and economic structures in Japan led to dictatorship and war. While the first group argued that Japan had "stumbled" into war, the latter saw the nation's misdeeds "rooted" in its institutions.
MacArthur straddled the "stumble" and "root" debate, calling for a "revolution" against the existing "feudal" order while backing moderate reforms. When Robert E. Wood, a conservative ally and head of the prewar isolationist group America First, questioned SCAP's advocacy of "socialistic reforms," MacArthur defended his program as an effort to purge a "decadent past" and "clear the way for the ultimate development in Japan of a healthy economy based upon free, competitive private enterprise."
The general's grandiloquent rhetoric confounded Americans across the political spectrum. MacArthur, who sought the Republican presidential nomination in both 1944 and 1948, considered Japan a political stage on which to demonstrate his executive ability. Yet, after observing the Occupation commander up close, Theodore Cohen concluded that he had only a "primitive" notion of economic issues. Raised in the West, MacArthur had little "urban and no industrial experience that might have prepared him for the great American and European social conflicts after World War I."
Although a fierce opponent of the New Deal, MacArthur recalled nineteenth-century populist rhetoric about selfish bankers and predatory corporations. Perry Miller, a historian of Puritan thought, recognized this sensibility while serving as a visiting scholar in occupied Japan. MacArthur wanted to transform Japan into a "new Middle West--not of course the Middle West as it is, or in fact ever was, but as it perpetually dreams of being."
The "controlled revolution" began in earnest in October 1945 when SCAP issued a civil liberties directive releasing political prisoners, legalizing all political parties, and assuring protection of the rights of assembly and speech. The cabinet of Prime Minister Higashikuni Naruhiko (formed shortly after surrender) resigned in protest, warning that the gates to Communist revolution had been thrown open.
Early in 1946, the SCAP government section startled the Japanese government when it produced a new constitution and threatened to submit it to a popular vote unless it was quickly accepted by the Diet. The document, which had to be translated into Japanese, stripped the emperor of temporal authority, enhanced the Diet's power, extended voting rights, and declared the legal equality of women. Article IX, to Washington's later regret, forbade creation of armed forces or the right of the state to conduct war.
In addition to the verdicts returned against top wartime leaders at the Tokyo war crimes trials, SCAP neutered the influence of many senior politicians through a purge in 1946. At the insistence of MacArthur and officials in Washington, however, the emperor was declared an opponent of militarism and aggression and thereby exempt from indictment for war crimes. Political moderates and most ordinary Japanese favored cleansing the landscape of militarists and ultranationalists. But the purge proved extremely selective. About twenty young American military officers were assigned the task of investigating 2.5 million cases. The burden fell on Japanese bureaucrats who easily shaded evidence. Ultimately, about 200,000 Japanese, over 80 percent from military and police ranks, lost their political rights. Relatively few politicians and fewer bureaucrats or business leaders fell victim to the purge. Among those who did, most had their rights restored before or just after the Occupation ended.
In rapid fashion, SCAP redressed the chronic problem of farm tenancy. MacArthur endorsed a plan "to tear down the large feudalistic land holdings in order that those who kill the soil will have the opportunity to reap the full benefit from their toil." Advocates of reform claimed that it would expand food production, democratize the rural economy, and prevent the type of peasant revolts sweeping China and Southeast Asia.
In addition to tenants, many Japanese academics and bureaucrats recognized the exploitive nature of the rural economy. During the war, the military government had struck a blow against landlords by limiting their right to collect rent and purchasing rice directly from cultivators. By the time the Occupation ended, nearly a third of Japan's land had changed hands. Land reform created a class of small farmers loyal to the conservative politicians who initially opposed the law. In 1950, China's deposed leader, Jiang Jieshi (Chiang Kai-shek) paid eloquent tribute to the reform when he wrote to MacArthur from Taiwan that if he "could have done in China what you did in Japan, I would still be there today."
Reform touched nearly every major institution during the first three years of Occupation. SCAP reorganized the national police, remodeled public education along Western lines, voided repressive labor codes, and seemed pleased that by 1947 nearly half the urban workforce joined trade unions.
Despite these important reforms, many powerful structures resisted change. Prewar career bureaucrats remained in charge of most ministries, hardly touched by the purge or new constitution. MacArthur's concern with free elections obscured the fact that, because of their prewar roots and financial links to big business, conservative parties continued to dominate the Diet.
Continuity, as much as change, characterized Japanese politics after 1945. Unlike what occurred in Germany, the Japanese government and bureaucracy--except for a small number of purged individuals--remained in place, subject to supervision and direction by American authorities. In the first postwar election of April 1946, two conservative parties--the Progressives and the Liberals--won a majority of Diet seats. The conservatives supported the emperor system, favored the prevailing economic structure, and urged limits on the power of organized labor. Personalities, instead of ideologies, accounted for most of the differences between the main groups. The political weight of rural districts gave the conservatives a built-in electoral advantage.
Even with the rapid growth of labor unions, parties on the left faced serious impediments under the new system. After decades of police repression, the Socialists and Communists had little experience in contesting open elections. Campaign finances were meager and factional squabbles pervasive. Until 1950, the Japan Communist Party was more reformist than revolutionary. The Socialists often took a more radical Marxist line toward industry and favored strict, unarmed neutrality in the cold war.
Yoshida's conservative coalition cabinet held power for a year. By June 1947, the Socialists won enough Diet seats to organize a short-lived minority Socialist cabinet under Katayama Tetsu. This coalition collapsed early in 1948 and Yoshida soon returned as prime minister, a position he retained until December 1954. With some short lapses, proteges of the so-called Yoshida school dominated Japanese politics until 1993.
Initial American interest in dissolving Japan's large, interlocking industrial and banking conglomerates--the zaibatsu, or money clique--remained unfulfilled. In 1945, the State and War Departments instructed MacArthur to promote a wider "distribution of income and ownership of the means of production and trade" by pursuing a vigorous anti-monopoly program. When SCAP hesitated to attack the zaibatsu, the State and Justice Departments dispatched a "Special Mission on Japanese Combines," led by economist Corwin Edwards, and a Reparations Mission under oilman Edwin Pauley. In 1945-46, both groups proposed comprehensive reparations and anti-monopoly programs. But neither President Truman nor his advisers took much interest in the issue and the programs faltered. The impasse over economic policy contributed to falling production, rising unemployment, soaring inflation, and a large trade deficit. Merely to prevent economic collapse and starvation, the United States provided annual assistance of $400 million through the army's Government and Relief in Occupied Areas program (GARIOA).
Rethinking the Occupation
When the Truman administration finally turned its attention toward Japan during 1947, it did so under dramatically altered circumstances. The deterioration of relations with the Soviet Union and the failure of the West European, German, and Japanese economies to recover frightened American policymakers. Navy Secretary James Forrestal brought Undersecretary of State Dean Acheson, Secretary of War Robert Patterson, Agriculture Secretary Clinton Anderson, former ambassador to Moscow Averell Harriman, and former president Herbert Hoover together to discuss how to "have a run for our side in the competition with the Soviet Union." Containing the Soviets, Forrestal insisted, required putting "Japan, Germany and the other affiliates of the Axis ... back to work." All agreed that European recovery and security required the revival of German industry. Everything said about Germany, Forrestal stressed, "applied with equal force to Japan."
The group concluded that MacArthur's disdain for civil authority and his political ambition were "wrecking" the Japanese economy and risked a "complete economic collapse." Someone had to be placed in Tokyo who would follow orders. Unless Truman agreed to send a "super diplomat" to Tokyo to "break the grip of General MacArthur," Acheson warned, the situation would deteriorate.
Yet Truman hesitated to intervene. He had recently appointed George C. Marshall to replace James F. Byrnes as secretary of state. The War and Navy Departments remained bitterly divided over budgets and declined to challenge MacArthur. Meanwhile, economic decline in Western Europe and Japan accelerated, posing greater peril to American security than Soviet military power.
The loss of colonies and colonial rebellions in Southeast Asia, the legacy of wartime hatred and physical destruction, and the division of Europe--all inhibited recovery. Also, the spectacular economic growth of the United States during the war magnified the troubles of Europe and Japan, since in their weakened condition they could hardly compete in world commerce with the American colossus. The resulting trade imbalance, the so-called dollar gap between the world's need for American food, raw materials, and manufactured goods and the inadequate hard currency available for their purchase, threatened to paralyze world trade. Unless their production and export earnings were restored, Europe and Japan would soon run out of dollars and raw materials. Caught between threats of social disorder and Communist power, America's key partners might seek an accommodation with the Soviet Union.
This prospect convinced planners such as Dean Acheson, James Forrestal, George Kennan, and Army Undersecretary William H. Draper that Washington had to promote industrial recovery in Europe and Japan. By providing capital and raw materials, the United States could stimulate production and exports vital to the stability of these areas and, in the long run, to the United States. Planners hoped that after initial American aid, the Europeans and Japanese could use some of their scarce dollars to purchase raw materials from developing nations and sell manufactured goods to them. The growth of regional markets would create efficiencies of scale, promote stability in developing countries, and blunt Communist influence globally.
Secretary of State George C. Marshall encouraged Acheson and Kennan to develop proposals along these lines. Joined by James Forrestal, named head of the new Defense Department late in 1947, and other civilian and military specialists, they contributed to the evolving containment program. At its inception, containment focused on recovery in Europe and Japan in order to deny control of their industrial capacity to the Kremlin. Eventually, the planners believed, the Soviet Union would respond to this policy by altering its behavior in ways favorable to the West.
Although MacArthur had no principled objection to this policy change, he bitterly resented efforts to interfere with SCAP. Any suggestion that Japan required a special recovery program implied that he had not done enough. Even worse, a new recovery program would extend the Occupation beyond early 1948--when he hoped to leave Tokyo in triumphant pursuit of the presidency. MacArthur maintained that in accomplishing Japan's disarmament and democratization, he had fulfilled the essential goals of the Occupation. Economic problems could be resolved after the Americans left. He dismissed the Soviet threat to a neutral Japan and insisted that a "simple article" in a peace treaty providing for UN protection would assure Tokyo's security.
President Truman struck a dramatically different tone in his March 12, 1947, message to Congress concerning the crisis in Greece, occasioned by British withdrawal of support from the conservative regime fighting a civil war. In what became known as the Truman Doctrine, the president blamed Moscow and its agents for threatening not only Greece and Turkey, but free governments everywhere. He asked Congress to assist Greece and Turkey as a down payment on a far wider aid program.
Truman's appeal prompted MacArthur to lash out at the administration's policy at a press conference on March 17. He boasted that the "spiritual revolution" he had presided over insulated Japan from internal or external threats and eliminated the need for an expensive recovery program.
These assertions contrasted with the belief of nearly all policymakers in Washington that an early end to the Occupation would cause economic collapse and, quite possibly, Communist incursions. In a speech delivered on May 8, Dean Acheson revealed a new approach to foreign policy. The dollar gap and the grim economic situation abroad, the undersecretary asserted, stemmed from the "grim fact of life" that the "greatest workshops of Europe and Asia, Germany and Japan" remained idle. World stability required rebuilding the "two workshops" on which the "ultimate recovery of the two continents so largely depends." American forces would stay in Germany and Japan until their economies revived.
In July 1947, without consulting Washington, MacArthur unveiled his own recovery package. Since 1946, he had blocked a proposal (formally known as FEC 230) to dismantle the Japanese industrial combines or zaibatsu. Now, just as Washington resolved to make industrial recovery a priority, MacArthur ordered the Diet to pass a bill dissolving the combines and decentralizing industry.
George Kennan warned cabinet members that out of ignorance or duplicity, MacArthur had opened Japan to Communist influence. The "socialization" attack on big business, Kennan predicted, would cause "economic disaster, inflation ... near anarchy which would be precisely what the communists want." He portrayed the attack on the zaibatsu as a "vicious" scheme to destroy the major barrier to Soviet penetration in Asia. William H. Draper complained that SCAP had turned Japan into an economic "morgue." Army Secretary Kenneth Royall charged that MacArthur's plan resembled "socialism ... if not near communism." The survival of the free world, James Forrestal told Truman, required giving priority to rebuilding Germany and Japan, "the two countries we have just destroyed."
As the general's critics suspected, his support for zaibatsu dissolution reflected his political ambitions. MacArthur had encouraged supporters to enter his name in several midwestern presidential primaries. The earliest vote took place in Wisconsin, home of the general's father and where he himself lived briefly. To enhance his native son status, MacArthur's campaign relied on Phillip LaFollette, scion of the influential Wisconsin political dynasty renowned for its anti-monopoly crusade.
While MacArthur ignored formal requests to delay Diet action on the zaibatsu bill, the Army Department received news from Tokyo that confirmed the link between the deconcentration program and presidential politics. A Japanese informant reported that when the Diet almost adjourned without passing an anti-monopoly bill, an aide to MacArthur told Prime Minister Katayama that the law must "be passed so as not to embarrass" the general who "expected to be nominated for president." MacArthur allegedly told the Japanese that he did not care about strict enforcement of the law, but insisted that there be "no sign of dissension in Tokyo." If the Japanese caused him problems, it would "prejudice the future of Japan when the Supreme Commander became president."
A bitter war of words erupted between Washington and SCAP at the end of 1947. Army and State Department officials leaked unflattering accounts of the Occupation to members of Congress and journalists who then accused MacArthur of promoting reforms "far to the left of anything tolerated in America" and of embracing the "lethal weapons" of socialism. The general retorted that the deconcentration program targeted only fifty-six families and that his reforms would prevent a "bloodbath of revolutionary violence."
Ignoring MacArthur, diplomats and military planners proposed sweeping changes in Occupation policy that they euphemistically called a "switch in emphasis." But Truman, so unsure of his prospects that he contemplated asking Dwight D. Eisenhower to run in his place, hesitated to act before the primary elections.
The general's presidential boomlet burst on April 6, 1948. Wisconsin Republicans, divided by local issues, were influenced by Senator Joseph McCarthy's tirades against MacArthur. The "great general," the senator declared, was "ready for retirement." Although he claimed to be a Wisconsin native, "neither his first nor his second marriage, nor his divorce took place in Wisconsin" and "neither wife ever resided in Wisconsin." Swayed by this logic, most Republicans voted for Minnesotan Harold Stassen. This poor showing in his "native" state torpedoed the general's candidacy. After another defeat in Nebraska, MacArthur abandoned his second quest for the GOP nomination. Although he remained as Occupation commander in Tokyo for three more years, he had lost the charisma that allowed him to defy Washington with impunity.
Kennan's Policy Planning Staff had for some time considered ways of halting or reversing many Occupation reforms. The "radically changed world situation," the Planning Staff reported, required that Japan be made "internally stable," more "amenable to American leadership," and "industrially revived" in order to assure the stability of "non-communist Asia." To prevent left-wing influence or Soviet penetration, America should "crank-up" the Japanese economy and bind Tokyo to the West through a defense pact.
Russia's conduct, the planners asserted, precluded a neutral Japan. Instead, "Hirohito's islands" should be made a "buffer state" against the Soviet Union. Although Kennan and his staff doubted Stalin would attack Japan, Kennan feared that Communist control over Manchuria, China, and Korea would provide a "lever for Soviet political pressure" unless Japan obtained "vital raw materials and markets elsewhere," particularly in Southeast Asia. Japan's survival as an ally and the denial of its industrial base to the Soviets required action "to prime the Japanese economic pump.
Kennan and Army Undersecretary William H. Draper observed the situation firsthand during a March 1948 visit to Tokyo. In a hectoring monologue aimed at Kennan, MacArthur defended his actions and denounced the idea of linking Japan to a regional containment program. The business purge, he insisted, affected only "elderly incompetents" similar to "the most effete New York club men." He denied that the anti-zaibatsu program resembled socialism, but accused the State Department of coddling leftists. As an "international official," the general argued, he was free to defy Washington.
MacArthur's geopolitical nostrums and blathering about planting the "seeds of Christianity" among a "billion of these Oriental peoples on the shores of the Pacific" repelled Kennan. The "degree of internal intrigue" in the general's headquarters, the diplomat wrote to a colleague, resembled "nothing more than the latter days of the court of the Empress Catherine II, or possibly the final stages of the regime of Belisarius in Italy." The "fragile psychic quality" exuded by MacArthur's entourage echoed the mood in Stalin's Kremlin. SCAP's social engineering, Kennan feared, would wreck Japan or be rejected as an alien creed after the Americans left, leaving Communism to fill the void.
During his brief time in Japan, Kennan began to redraft the Occupation agenda. As he saw things, MacArthur had sewn the seeds of disaster by crippling industry and purging business leaders. It was vital to revive, not dissolve, industrial combines, clamp down on, not promote, labor unions, and bolster conservative, not leftist, political forces. Nothing should be permitted that "operated against the stability of Japanese society" or recovery.
At the same time as Kennan reached these conclusions, Army Undersecretary William Draper escorted a business delegation to Japan led by Chemical Bank chairman Percy H. Johnston. After meeting with zaibatsu representatives, the group issued its own critique of SCAP's "radical" economic policies and told journalists they favored curtailing reparations and the assault on the zaibatsu while providing substantial assistance to Japanese industry. The "bad times were over," Draper reportedly told the Japanese.
On April 26, Draper released the findings of the Johnston committee. They recommended suspending reparations and attacks on industry while curbing labor unions. In place of industrial reform, the report urged promoting production and boosting exports, even at the cost of reducing living standards.
These proposals for a new Occupation agenda were formalized in a document submitted by the Policy Planning Staff to the National Security Council during the summer of 1948 and approved as NSC 13/2 by President Truman in October. It proclaimed economic recovery as the "prime objective" in Japan. Reparations were halted and restrictions on most industry lifted. SCAP and the Japanese government were to preferentially allocate raw materials and credit to firms that produced for export. Congress helped by passing the Economic Recovery in Occupied Areas (EROA) bill and cotton credits, offering substantial amounts of capital and raw materials.
To gut the deconcentration law, the army sent a special review board to Tokyo. The board exempted all banks from scrutiny and overturned or softened all but a handful of the 325 dissolution orders already issued against the zaibatsu. By 1949, the board declared the anti-monopoly program a success and terminated it.
Following his election triumph in November 1948, Truman committed his full authority to the so-called reverse course. On December 10, he issued an economic directive that consolidated the themes of NSC 13/2, the Johnston report, and related calls for cranking up industry. He named a special emissary, Detroit banker Joseph Dodge, to oversee SCAP and implement the program.
Before going to Tokyo in February 1949, Dodge established ties with a private lobbying group that had been among MacArthur's most trenchant critics. The previous year Newsweek editor Harry Kern, the magazine's Tokyo correspondent Compton Packenham, business lawyer James Lee Kauffman, and former State Department Japan specialist Eugene Dooman had founded the American Council on Japan (ACJ). Its members included some two dozen journalists, lawyers, retired diplomats, and military officers who acted as a liaison between Japanese business and political leaders--including many purgees--and officials such as William Draper and George Kennan.
Dodge distributed a report from the ACJ to his staff that denounced SCAP as a "bureaucratic, inefficient, dictatorial, vindictive, and at times corrupt" organization. It accused MacArthur and his staff of destroying the "very individuals and classes" who supported the United States in the cold war while giving Communists free rein.
The so-called economic czar imposed budget and industrial policies that breathed new life into the zaibatsu, curbed inflation, drove down worker's living standards, limited the rights of unions to bargain and strike, and aimed to restore Japan as an industrial exporter. After his political reversal, MacArthur accepted Dodge's economic initiatives as well as moves by Yoshida that curbed union power and promoted big business.
During 1949 and early 1950, Dodge held to a rigorous program of neoclassic economic policy designed to rationalize an inflation-driven economy operating at little more than two-thirds of its prewar level. He envisioned Japan as a high-volume, low-cost exporter of consumer goods primarily to Asian markets. To reduce what he considered frivolous spending, he ordered major reductions in the public welfare budget, curtailment of business loans, and the firing of 250,000 government workers. These actions decreased domestic consumption and shunted bank credit, foreign currency, and raw materials to large enterprises engaged in export production.
In April 1949, Dodge and a now compliant SCAP encouraged the Japanese government to organize a Ministry of International Trade and Industry (MITI). Modeled on the wartime Munitions Ministry and staffed by many of that agency's veteran bureaucrats, MITI provided "administrative guidance" to banks and corporations. It directed the flow of domestic credit, foreign currency, imported raw materials, and foreign technology to favored companies that produced primarily for the export market and sold goods for hard currency. Japan's government-guided, export-driven economy, later described as a "capitalist development state" or, less charitably, "Japan, Inc.," was nurtured by American directives.
Dodge considered industrial recovery, export promotion, and containment of Communism as related goals. A stable Japan, he argued, would serve as a key "border area in the world-wide clash between communism and democracy." Ideologically tied to the West and commercially linked to Asia, Japan would deflect "totalitarian pressures" and counter the Communist "pan-Asiatic movement." Through Japan, the United States could apply "tremendous influence over our relations with all of the Orient." In the future, Dodge told a congressional committee early in 1950, Japan could be "used as a springboard for America, and a country supplying the material goods required for American aid to the Far East."
The Sinews of Containment: Japan, China, and Southeast Asia
The commitment to Japanese recovery raised the question of where, outside the United States, it could find affordable raw materials and an export market. Sustained growth, American planners believed, required revived Asian trade so that Japan could import raw materials from nondollar areas that constituted her natural export markets. As one State Department official observed, aside from its reliance on force, there was much economic merit in Japan's "plan for a Greater East Asia."
Just as China, Manchuria, and Korea had formed the pivot of Japan's prewar Asian trade, Southeast Asia appeared the most promising area for future commerce. Army Undersecretary William Draper noted this in pressing his staff to prepare an "economic aid program, similar to the Marshall Plan, for the Far East." Ralph Reid, an adviser to Draper and Joseph Dodge, proposed linking Japan's economy to "strong, independent governments [in Asia], friendly towards the United States and opposed to Communism in order to provide a bulwark against Soviet encroachment, to assure the U.S. sources of strategic raw materials, and to deny to the Soviet Union the manpower potential of the Far East."
During 1949, Reid and Joseph Dodge cooperated with SCAP's Economic and Scientific Section to implement a "Program for a Self-Supporting Japanese Economy." Known as the "Blue Book" because of its binder, it postulated a five-year program of American aid to boost production and help Japan develop "key markets and indispensable sources of raw materials ... in the natural market areas in Asia."
Reid and Assistant Army Secretary Tracy Voorhees saw the Asian "Marshall Plan" as a way of integrating Southeast Asia and Japan. But first the United States had to suppress nationalist rebellions and Communist encroachment. With multicolor charts depicting Japan as the locus of a regional economy, they proposed to "create democratic governments, restore viable economies, and check Soviet expansion." The program could "advance the dignity of man," and keep "vital raw materials" out of Communist control.
Although a Marshall Plan for Asia never went beyond the planning stage, the Communist advance in China and the upsurge of rebellion in Indochina, Malaya, and the Dutch East Indies focused greater attention on the importance of Southeast Asia. As with Germany and Japan, Kennan's Policy Planning Staff (PPS) took the lead in calling for a new approach to the region. John P. Davies, a member of the PPS staff, circulated a memorandum in December 1948 that shaped the American government's thinking about the link between Japan and Southeast Asia. American interests, he argued, required
creating an apparatus which will enable us to employ our and Japan's economy as an instrument of political warfare with respect to Communist Asia; acquiring necessary raw materials for U.S. strategic and economic requirements; developing economic stability and interdependence among the Western Pacific islands (including Japan) Malaya, and Siam; encouraging a flow of raw materials from Southeast Asia to the [Western European] ERP countries.
When Dean Acheson replaced George Marshall as secretary of state early in 1949, he brought to the job a deep interest in Southeast Asia. He hoped to refocus the attention of Congress away from the debacle in China where, he argued, America could do nothing until the "brick, dust and smoke clears away." If China was lost, protecting Japan's industrial base and Southeast Asia's mineral wealth required "drawing the line" against Communist encroachment. Acheson asked the PPS to formulate a regional policy along the lines sketched by Davies.
The PPS accused the Kremlin of launching a "coordinated offensive" against Southeast Asia. By denying the region's mineral wealth to Europe and Japan, the Soviets hoped to divide the globe on a "north-south axis" and strangle the industrialized nations. Because of this, Southeast Asia formed a "vital segment on the line of containment."
To frustrate the Kremlin, Washington had to ease out the European colonial powers and work "through a screen of anti-communist Asiatics" to ensure, "however long it takes" the triumph of genuine nationalism "over Red Imperialism." The United States should "vigorously develop the economic interdependence between [Southeast Asia] as a supplier of raw materials, and Japan, Western Europe and India as suppliers of finished goods." Stability, Acheson's aides concluded in April 1949, would allow Southeast Asia to fulfill its "major function as a source of raw materials and a market for Japan and Western Europe."
The establishment of the People's Republic of China on October 1, 1949, made this question urgent. Few policymakers in the Truman administration believed the "loss" of China directly threatened American security. But many worried that the Communist victory would undermine Japan, whose industry had long drawn raw materials from northeast Asia. As George Kennan observed at a State Department conference assessing the impact of the Chinese revolution, "You have" the "terrific problem" of how the "Japanese are going to get along unless they again re-open some sort of empire to the South." Philip Taylor, a SCAP veteran, noted that with China passing into the Communist orbit, "We have got to get Japan back into, I am afraid, the old Co-Prosperity Sphere."
To assure future cooperation, Kennan recommended keeping Japan on a short tether. A prosperous yet dependent ally would best serve American interests. This required imposing controls "foolproof enough and cleverly enough exercised ... to have power over what Japan imports in the way of oil and other things." Economic controls would give Washington "veto power over what she does."
Most civilian policymakers agreed that Japan's industrial potential made it both a critical American asset and Soviet target in Asia. If Japan were "added to the Communist bloc," Dean Acheson told British Ambassador Oliver Franks in December 1949, "the Soviets would acquire skilled manpower and industrial potential capable of significantly altering the balance of world power."
Much of the debate within the Truman administration about China and Southeast Asia reflected concern over Japan. Would American "moderation" toward Beijing hasten a break between Mao and Stalin or would it be seen as appeasement and encourage Communist expansion? Given Japan's need for trade outlets, would regulated commerce with China speed Japanese recovery or simply hand the communists a means for blackmailing Tokyo? Where, besides China, could Japan find affordable raw materials?
Articles by journalists Joseph and Stewart Alsop highlighted the consequences for Japan if Southeast Asia, like China, was "lost." Reporting from the region in August 1949, Stewart wrote that following their victory in China the Soviets planned to build a Communist Co-Prosperity Sphere. Since China and Southeast Asia "comprise Japan's whole natural trading area," economic "pressure alone could be enough ultimately to bring Japan into the Soviet sphere." With "Japan's industrial potential added to the natural riches and huge population of Southeast Asia and China," the Soviets could achieve "a vast upset in the world power balance."
After another trip through the region early in 1950, Stewart Alsop described the Kremlin's effort to "organize another infinitely vaster Asiatic Co-Prosperity Sphere." Citing a bowling analogy (which preceded the domino theory), Alsop wrote:
The head pin was China. It is down already. The two pins in the second row are Burma and Indo-china. If they go, the three pins in the third row, Siam, Malaya and Indonesia, are pretty sure to topple in their turn. And if all the rest of Asia goes, the resulting psychological, political and economic magnetism will almost certainly drag down the four pins of the fourth row, India, Pakistan, Japan and the Philippines.
Alsop mentioned an interview with Japanese Communist leader Nozaka Sanzo as proof of this plan. Nozaka, he said, outlined a great crescent of Soviet power stretching from Siberia to New Guinea. With a "bread, cheerful grin," he told Alsop that "it won't be long" before this "immense new Russian empire" absorbed Japan.
With some misgivings, President Truman supported the recommendations of Dean Acheson that the United States adopt a nonconfrontational approach to the Chinese Communist regime. Refuting Republican critics in Congress and the Joint Chiefs of Staff who advocated further aid to the Nationalists on Taiwan or intervention in China, Acheson insisted that, by avoiding provocations, the United States would allow the "full force of nationalism" in China eventually to turn against the Kremlin. As China's Communist leaders grew frustrated with Soviet interference and inadequate aid, they would seek "amicable relations with the world community." This outcome, Acheson admitted, might take years, but made more sense than aiding the Nationalists or fighting the Communists.
These signs of American flexibility toward the People's Republic of China had major consequences for Japan. Chinese Communist leaders, despite their disapproval of American Occupation policy, remained eager to revive trade with Japan. China's industrial infrastructure, especially in the northeast, relied heavily on Japanese equipment. For Japan, Manchurian coking coal, soybeans, and other primary products were staples of industrial development. Japan's defeat and China's civil war had blocked trade, but both sides saw value in restoring commercial ties. American economists estimated that two-way Sino-Japanese trade might total $50 million in 1950 and at least five times that by 1953.
Trade with Japan would allow China to earn foreign exchange, acquire new technology, and avoid total dependence on the Soviet Union. Communist officials, who shunned contact with the few American diplomats still in Beijing, spoke with Consul General O. Edmund Clubb early in 1949 about resuming Sino-Japanese trade.
The strong antipathy toward Communism among Japan's business and governing elite did not blunt their interest in trade. Soon after he recognized the likelihood of Mao's victory, Prime Minister Yoshida stated that he anticipated "without any anxiety the possibility of a total [seizure] of China by the communists." He hoped that restoration of central government in China would restrain the Soviet Union, restore trade opportunities, and give Japan some additional leverage with America. Whether China was "red or green," the prime minister asserted, it was a "natural market, and it has become necessary for Japan to think about markets." In 1949, Trade Minister Inagaki Heitaro predicted that Japan might eventually conduct as much as a third of its foreign trade with China. Yoshida and his business allies, American analysts realized, were more than ready to "gamble on their own skills in pursuing an independent" policy toward the new China.
Although state, army, and SCAP officials recognized that Sino-Japanese trade could hasten recovery and reduce American aid costs, they foresaw political complications. Most hoped to maintain influence over Japan by tethering it to American-controlled sources of critical imports. Access to Chinese raw materials might alter "Japan's political and strategic orientation." By promising preferential trade access or threatening to withdraw favors already granted, Chinese leaders might pull Tokyo "into the Communist bloc." For example, if Japan's steel industry relied on Chinese coking coal, what would prevent Beijing from abruptly cutting off supplies to force a "serious economic crisis" for political purposes? By the same token, Japan might simply drift toward neutralism to avoid offending China.
The Department of State advocated a two-track policy, permitting Japan limited trade with China as a "breathing space before the development of better trade conditions for Japan in Southeast Asia." Meanwhile, development aid to Southeast Asia should serve the "dual purpose" of advancing American influence by "providing insurance not only for Japan's future economic independence" but also for the degree of economic stability required for "political independence throughout the Far East."
In March 1949, President Truman approved a China trade policy reflecting Acheson's view that a total embargo would hurt American allies and drive China closer to the Soviet Union, the opposite of what Washington desired. Regulated trade could be of "significant importance" in hastening Japanese recovery. Acheson admitted that dependence on China "would provide the communists with potentially powerful leverage over Japan after the United States Occupation and financial support had been withdrawn." He persuaded Truman to accept this "calculated risk" so long as "every effort" was made "to develop alternative resources," particularly "in such areas as southern Asia where a need exists for Japanese exports."
In executive testimony before the Senate Foreign Relations Committee in January 1950, Acheson expanded on this theme. China, he predicted, would eventually fall out with its Soviet patron. In the interim, the United States should shift its "real center of interest" to the countries bordering China on a "crescent or semicircle which goes around ... Japan at one end and India at the other." Undertaking either military action or economic warfare against China, as Republican critics and some inside the administration demanded, would devastate Japan, which "lived on foreign trade." Prohibiting Japan's trade with China before finding an alternative would do little to injure the Communists but would make Tokyo a "pensioner of the United States."
Acheson proposed using funds from the recently approved Mutual Defense Assistance Program (MDAP), from $100 million left unspent in the 1948 China Aid Act, and from other sources in "such a way that we can get double benefits from them ... in the Far East." By solving the "great question" of Japan's economic needs, he told the senators, Asia could be saved from Communism. An economically desperate Japan, he warned, might resume aggression, turn toward the Soviets, or "ask for bids back and forth between the two sides." Because Southeast Asia could potentially supply so many of Japan's needs, Acheson testified later, the United States should concentrate on this region rather than China. For Stalin, he quipped, controlling "China without Indochina and Siam and Malaya," was "like getting to third base and not getting to score." Undersecretary of the Army Tracy Voorhees echoed the theme of linking aid to Japan and Southeast Asia. "Continuing or even maintaining Japan's economic recovery," he informed the National Security Council, depended on "keeping communism out of Southeast Asia, promoting economic recovery there" and developing the countries there "as principal trading partners for Japan."
During the first half of 1950, the Truman administration dispatched several economic missions to Japan and Southeast Asia. The Army and Agriculture Departments sent a joint delegation led by Deputy Undersecretary of the Army Robert West and Stanley Andrews of the Office of Foreign Agricultural Relations. R. Allen Griffin, of the European Cooperation Administration, led a team of State, Defense, Treasury, and ECA representatives on a mission to lay the basis for "expanded trade between the [Southeast Asian] countries and Japan." They were especially eager to promote exchanges of Southeast Asian raw materials for Japanese manufactured goods.
Army Undersecretary Voorhees proposed rebuilding Japan's armament industry as a source of export earnings. In one stroke, this would enhance Japan's heavy industry, assure an export market in Southeast Asia, and restrain Communist insurgencies. Southeast Asian customers could pay with raw materials, offering Japan an alternative to Chinese supplies. This typified proposals from State, Defense, and Treasury for financing regional trade.
American involvement in Indochina increased dramatically during the six-month run-up to the Korean War. In February 1950, the Soviet Union and China recognized Ho Chi Minh's Vietminh movement as the government of Vietnam. Washington quickly swallowed its misgivings about the Bao Dai regime and recognized the French puppet state of Vietnam. Over the next three months, State and Defense planners urged economic and military aid for Indochina and Truman ordered that it be expedited as a "matter of priority."