MEMO FOR RECORD: (SCAPIN - 1394)
16 October 1946
1. Joint Chiefs of Staff Directive 1380/15 requires that private controls over Japanese industry be abolished and that, where controls are necessary, public agencies be established to exercise those controls.
2. In order to carry out this policy, the Japanese Government's representatives were informed as early as July 1945 that the basic control of industry should be exercised through allotments of critical materials to manufacturers rather than by the control of distribution of manufactured products by private monopoly companies or associations.
3. On 13 September 1946, the Temporary Demand and Supply Adjustment Bill was agreed on by SCAP officials and Mr. Hoshijima, Minister of Commerce and Industry and was passed by the Diet in the last few days of September. This bill provided the mechanics for allotments to manufacturers and for other incidental controls to be exercised in cases of emergency.
4. On 27 September 1946 the Central Liaison Office, in behalf of the Economic Stabilization Board, the Ministry of Commerce and Industry, and the Ministry of Agriculture and Forestry, presented seven (7) sample Ministerial Ordinances to the Antitrust and Cartels Division with a request that they and thirty-three (33) others be approved, establishing controls over products in short supply. Since the National Mobilization Act of 1941 expired on 30 September 1946, it was essential that action be taken by that date.
5. With informal approval of appropriate Divisions of SCAP, the Antitrust and Cartels Division refused the forty (40) proposed ordinances but instructed the Japanese to continue the existing Ordinances in effect for a period of one (1) month, to redraft ordinances in terms of allotment control, rather than distribution control, and present as many rewritten ordinances as possible by Friday, 4 October 1946.
6. The Japanese extended the ordinances issued under the General Mobilization Act, but failed to limit the extension to a one (1) month period. Their excuse was that it was contrary to Japanese custom to limit a ministerial ordinance. They presented several redrafts of ministerial ordinances, none of which differed substantially from ordinances previously proposed. In other words, the proposed ordinances which established the basis for industrial control are identical in substance with those in effect under the General Mobilization Act of 1941. Their reason for failing to follow the informal instructions noted above in paragraph 5 was that only by a private monopoly could an adequate control of industry be exercised.
7. The attitude of obstruction toward efforts to disestablish the control company device as a method of government delegated control is not difficult to understand. These companies are capitalized, as a rule, by manufacturers and distributors of the product involved. Through the device of cross-directorates, they frequently control the manufacturers association which in turn controls the allocation of raw materials to the industry, In addition, these companies perform incidental functions, such as, providing short-term financing, arranging for transportation, price-fixing, issues regulations regarding trade-practices, and so forth. It is because of the complete control of every feature of production and distribution exercised by the men who have gained control of these companies that the Japanese have been able to mobilize small and medium sized industry during the war.
8. The problem for Japan now is to stimulate production to the extent that critical raw materials are not wasted. Control associations and companies should not be permitted to exercise governmental functions which limit production or distribution. The attached directive would require bat the control powers of control companies and other private organizations be eliminated, and that, where a controlled distribution is required, a governmental agency be set up to handle the function.
9. This is an administrative matter, and no surveillance by the Eighth Army is required.
10. The interests of USAFIK are not concerned.
11. Concurrences: ESS/IN (Mr. J. Z. Reday); ESS/LE (Major E. R. Minnich); ESS/PCR (Mr. H. F. Alber);
ESS/TD (Major H. S. Tate); PHW (Lt. Col. B. N. Riordan); TS (Capt. E. F. Powell).
NRS - Discussed with Major M. W. Roche and no objection offered.
V. H. K.