The relationship between the United States and Japan is torn by contrary impulses. We face each other across the Pacific as friends and allies, as the two most powerful economies in the worldand as suspicious rivals. Americans admire the industry of the Japanese, but we resent the huge trade deficit that has developed between us, due to what we consider to be unfair trade practices and "unlevel playing fields." Now, in Altered States, historian Michael Schaller strips away the stereotypes and misinformation clouding American perceptions of Japan, providing the historical background that helps us make sense of this important relationship.
Here is an eye-opening history of U.S.-Japan relations from the end of World War II to the present, revealing its rich depths and startling complexities. Perhaps Schaller's most startling revelation is that modern Japan is what we made itthat most of what we criticize in Japan's behavior today stems directly from U.S. policy in the 1950s. Indeed, as the book shows, for seven years after the end of the war, our occupational forces exerted enormous influence over the shape and direction of Japan's economic future. Stunned by the Communist victory in China and the outbreak of war in Korea, and fearful that Japan might form ties with Mao's China, the U.S. encouraged the rapid development of the Japanese economy, protecting the huge industrial conglomerates and creating new bureaucracies to direct growth. Thus Japan's government-guided, export-driven economy was nurtured by our own policy. Moreover, the United States fretted about Japan's economic weaknessthat they would become dependent on usand sought to expand Tokyo's access to markets in the very areas it had just tried to conquer, the old Co Prosperity Sphere. Schaller documents how, as the Cold War deepened throughout the 1950s, Washington showered money on what it saw as the keystone of the eastern shore of Asia, working assiduously to expand the Japanese economy and, in fact, worrying intensely over the American trade surplus. Fear of Japanese instability ran so deep that Presidents Eisenhower, Kennedy, and Johnson approved secret financial help to Japanese conservative politicians, some of whom had been accused of war crimes against Americans. Then came the 1960s, and the surplus faded into a deficit. The book reveals how Washington's involvement in Vietnam provided the Japanese government with political cover for quietly pursuing a more independent course. Even in the 1970s, however, with America's one time ward turned into an economic powerhouse, the Nixon administration failed to pay much attention to Tokyo. Schaller shows that Kissinger openly preferred the more charismatic company of Zhou Enlai to that of Japanese technocrats, while economics bored him. The United States almost missed the fact that Japan had developed into a country that could say no, and very loudly.
Michael Schaller has won widespread acclaim for his earlier books on U. S. relations with Asia. His fearless judgments, his fluid pen, his depth of knowledge and research have all lifted him to the front rank of historians writing today. In Altered States, he illuminates the most important, and troubled, relationship in the world in a work certain to cement his reputation.
About the Author
Michael Schaller is Professor of History at the University of Arizona. He is the author of a number of books, including Reckoning with Reagan: America and its President in the 1980s; Douglas McArthur: Far Eastern General; The American Occupation of Japan: The Origins of the Cold War in Asia; and The United States and China in the Twentieth Century.
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1 JAPAN: FROM ENEMY TO ALLY,
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.
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