Journal of World-Systems Research: Volume 1, Number 3, 1995
http://jwsr.ucr.edu
ISSN 1076-156X
RESTRUCTURING MARKETS, REORGANIZING NATURE:
AN EXAMINATION OF JAPANESE STRATEGIES FOR
ACCESS TO RAW MATERIALS
Stephen G. Bunker
Department of Sociology
University of Wisconsin
Madison, Wisconsin 53706 USA
bunker@ssc.wisc.edu
Paul S. Ciccantell
Department of Sociology, Anthropology and Social Work
Kansas State University
Manhattan, Kansas 66506 USA
ciccant@ksuvm
Copyright (c) 1995 Stephen Bunker and Paul Ciccantell
I. INTRODUCTION
Theorists of hegemony combine a concern with the causes of war
and peace with questions of dominant trade regimes. While this
combination addresses issues of central importance for studies of
international relations, it may somewhat confound the role of
hegemony studies within a world systems perspective. The power of
the world systems perspective lies in the consideration of entire
worlds, not simply as the appropriate unit of analysis, but as
integrated units of production and exchange. Hierarchy within this
system reflects not simply politically enforced relations of
unequal exchange, but the subordination of production in different
parts of the world to regimes constructed and manipulated by core
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powers to their own economic and political advantage. The
processes that create the power of the core and the processes by
which the core subordinates the periphery constitute the critical
questions within this perspective. Part, but only part, of the
answer lies in the superior productive capacity and efficiency of
the core, and resulting ability to dominate trade. Another part,
and we believe this is primary, lies in the ways that, in order to
become so productive and so efficient, economies rising to core
status must organize other economies and international transport
systems to assure the increasing, secure, cheap supplies of the raw
materials that support productive efficiency and economic growth.
In order to ascend within a world system hierarchy, economies
must organize themselves in such a way as to create, directly or
indirectly, and then coordinate (or core-dinate) multiple raw
materials production systems within their own political boundaries
and, more importantly, in other noncore areas whose basic
characteristics are substantially molded by the physical and
topographic features and the location of the raw materials that
they export. Just as productive efficiency of firms within a
single industrial economy depends on a socially built environment
constructed by capital that reduces the cost of material and
informational flows to and within sites valorized by capital
(Harvey 1982), so too the productive efficiency of a core nation
requires a globally built environment that reduces the costs of
material flows to that economy from raw materials extracting
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regions. We argue that the organizational forms, knowledge, and
technologies that a rising economy must develop in order to satisfy
its growing and changing raw materials requirements themselves
constitute the capacities needed for world system dominance, both
in terms of production and in terms of strategic relations aimed at
achieving secured raw materials flows at minimal cost.
Because a rising hegemon must organize complex productive
systems across space to procure raw materials, the critical moments
of creating and transforming a world system occur during ascent.
The requirements of raw material procurement fundamentally mold the
economic organization of the core power itself and structure its
relations to its own periphery. The core state and firms
negotiate or impose systems of bilateral relations with peripheral
states which control raw materials sites whose products are in
demand in the core economy.
The creation and maintenance of these systems of bilateral
relations by the rising core power are critical to capital
accumulation in the core economy and to its military security.
Hegemony _per se_ is far less illuminating of world-system process
than the material processes defined in space involving the
appropriation of nature by core states and firms that precede and
create it. Intercore conflict and competition thus become one of
the avenues to understanding how core powers organize themselves
and how they organize the areas that become peripheral and
semiperipheral. From this perspective, whether there have been
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three hegemons or five or seven, and which the next one will be, is
ultimately less important than the strategies that different
ascendant core economies follow to achieve dominance, whether or
not they succeed in some absolute sense, and what impact these
strategies have on the organization of the world economy.
This paper briefly summarizes our research on Japanese
strategies to assure access to several industrially critical
minerals. We use case materials to examine two linked
propositions: 1) that successful access strategies are constrained
by the physical characteristics of the natural resource itself and
of the locations in which it is found, and 2) that the access
strategies of an ascendant economy require innovative responses
both to the constraints of these physical characteristics, and to
the established political and economic relations which govern the
international commerce in raw materials. We consider Japanese
strategies to secure access to coal, iron, copper, and aluminum.
This paper examines Japan's ascendence into the core and its
hegemonic rivalry with the U.S. in the post-World War II era based
on the development of Japan's raw materials and transport
industries. Raw materials industries (most notably steel but also
copper and aluminum) and transport industries (most notably
shipbuilding and shipping) were leading sectors of the Japanese
economy throughout most of the post-World War II era. These
industries created the economic, physical and social infrastructure
on which all other economic sectors in Japan depend. In order for
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Japan to follow this path of ascendence, regions which were rich in
raw materials in many areas of the world had to be closely linked
to Japan via networks of transport, trade and investment. As this
paper will demonstrate, Japanese firms and the Japanese state have
structured these networks in ways which have guaranteed access to
large supplies of low cost raw materials outside the control of
transnational raw materials firms based in its hegemonic rival, the
United States.
II. A MODEL OF HEGEMONY AND RAW MATERIALS ACCESS STRATEGIES
Ascendant national economies require expanding access to cheap
and secure sources of raw materials to sustain their challenge to
established industrial economies. Lowering raw materials costs is
critical to competition in international markets, and is
particularly important to the ascendant economy because it is also
extending productive and transport infrastructure faster than the
average of the established economies. Stability of supply is
required for operating plants at full capacity; this is
particularly important in the heavy industries in an ascendant
economy because these industries involve higher than average fixed
capital investments and inflexible sunk costs. Because the states
and firms of established industrial economies have often already
succeeded in structuring global raw material markets to their own
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advantage, the state and firms of the ascendant nation may have to
restructure these markets in order to compete effectively. Such
restructuring, however, may collide with environmental and spatial
constraints imposed by the physical characteristics of the raw
materials and the location of their sources. Previously ascendant,
and still dominant, economies will have organized raw materials
markets in such a way as to reduce their own costs and increase
their own security of supply. The established market systems are
therefore likely to accommodate the organization and location of
extraction, processing, and transport to the natural features and
locations of natural resources and their raw material forms.
The ascendant economy must therefore find new ways to
accommodate to natural characteristics, and to use these so as to
loosen or restructure markets already built around these natural
features. Historically, ascendant economies have done this via
several strategies. The first strategy is to incorporate new
technologies that effectively change established relations between
economy and environment. These can include new forms or expanded
scale of mining, processing, and transport. The second strategy is
to induce host countries to assume a significant share of the cost
of reorganizing world markets, introducing new technologies, and
developing new transport routes. The third strategy is direct
conquest of resource-rich peripheries, followed by wars or
diplomatic actions that impede access by the established economies.
These three major strategies have evolved historically to
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allow ascendant economies to continue their advance. The first
strategy has been employed in a number of instances. The adoption
of James Watt's vastly improved steam engine to remove water from
coal mines in Great Britain during the last twenty years of the
eighteenth century, for example, made huge reserves of deeply
buried coal that had previously been unextractable both
technologically and economically suddenly available on a large
scale at low cost to power Britain's Industrial Revolution (Mathias
1969:134-135; Rosenberg and Birdzell 1986:150- 151). Britain's
relatively early industrialization based on low cost coal was an
essential element of Britain's rise as a hegemonic core power.
Similarly, the rapid expansion of a domestic transportation
infrastructure in the United States in the mid-nineteenth century
based on the newly developed technology of railroads served to link
the United States' widely dispersed raw materials and agriculture
producing peripheries to markets and industrial centers in the
East(Stover 1961; Chandler 1965; Douglas 1992). This creation of
a low cost transport network was a central part of the United
States' rapid industrialization, the key to U.S. ascendence in the
world economy.
The second strategy has a similarly long history in the
capitalist world economy. Raw materials producing nations have
long been induced (and sometimes forced) by ascendent core powers
to pay a significant share of the costs of reorganizing world
markets, introducing new technologies, and developing new transport
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routes. Imperial core powers, for example, taxed their colonies to
support armies to control indigenous populations and used corvee
labor to construct infrastructure. Even in non-imperial
situations, ascendent core powers have been able to induce raw
materials extracting peripheries to finance the construction of
railroads, for example, often justified in terms of economic
development but mainly benefitting foreign investors and raw
materials consumers. Numerous examples of the employment of this
strategy by Britain occurred in Latin America during the nineteenth
century (Coatsworth 1981; Duncan 1932; Lewis 1983). Similarly,
British and North American rubber buyers and consumers were able to
induce members of the economic elite in the Brazilian Amazon to
finance the expansion of the wild rubber industry in the region to
supply the core's industrial plants in the late nineteenth century
(Bunker 1985; Barham and Coomes 1994a and 1994b). This strategy
dramatically reduces both the costs to and risks assumed by the
ascendent core economy's firms and state in the raw materials
extracting region.
The third strategy has an extremely long history, predating
the emergence of the capitalist world economy. Direct imperial
conquest of resource rich peripheries and the defense of these
formal and/or de facto annexations by force and/or diplomatic
actions, such as Belgium's conquest of the copper-rich Congo region
of Africa (Packenham 1991), have, however, become increasingly
difficult and expensive to carry out and maintain. As we will
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demonstrate in this paper, Japan has utilized all three of these
strategies at various points during its history.
Because these propositions relate to the location of the
extraction, processing, and ultimate transformation of huge amounts
of matter and energy, they have implications for both the global
environment and a large number of specifically local environments,
as well as for the economic activities of human populations.
Because a key component of any national raw material access
strategy involves the construction of efficient transport networks
on a global scale, successful strategies to restructure global raw
materials markets also reorganize the global environment. Finally,
these strategies may bear directly on the benefits and prejudices
to human populations in natural resource exporting societies.
Raw materials access strategies have attracted a significant
amount of attention from some theorists of hegemony. Raymond
Vernon (1983) remarked that the access strategies of the United
States and Japan were quite similar across different minerals
despite great differences in their physical characteristics,
locations, and technical exigencies. Vernon believed this was so
because, like Krasner (1976) and Keohane (1984), he focused on the
institutional and political frames around relations between
domestic firms and the national state. Huber Stephens and Stephens
(1985) and Norman Girvan (1976) have both suggested that the
capability of different countries' states and dominant classes to
bargain effectively for capture of revenues and linkages from
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minerals in their ground varies both between minerals and between
social and economic characteristics of the exporting countries.
Secure access to minerals requires some form of hegemonic trading
regime (Keohane 1984; Bunker and O'Hearn 1992), and this
requirement rests on the acquiescence and cooperation of host
countries (Bunker 1992).
These studies all suggest that raw materials access strategies
vary along multiple dimensions besides political and institutional
ones. Position in the world system hierarchy and the direction and
rate of change in that position impinge directly on strategic needs
and strategic capabilities. Intensity of use (tons consumed per
unit of GNP) of different metals varies by country and over time,
as do the absolute volumes of different materials used in the world
and national economies, directly affecting strategies across
different minerals. Location, relative concentration of resources
in space, and the structure of firm and state control over raw
materials sites all affect security of access. The chemical and
physical composition of the natural resources themselves constrain
technological and transport options and requirements, and determine
where in the chain of extraction, processing, and production the
major barriers to entry occur.
Because of the need for raw materials consuming countries to
secure cheap and stable access, oligopolies often emerge around
dominant firms and hegemonic systems among states in the trade of
materials that are industrially or militarily critical. The
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increasing remoteness of new raw materials sources and the
increasing scale of extraction, processing, and transport have
meant and increasingly mean that hegemonic systems can only
function with the acquiescence of the host country. This results
from the host country's control over the transport systems, its
ability to guarantee loans, its ability to supply labor, and its
willingness to enter into competition over rents. These
arrangements between hegemon and periphery will vary with the
economic and political conditions in both the host and the
importing countries as well as with the uses, technologies,
location, and volume of the specific raw material and with the
characteristics of specific sites from which it is extracted and
processed.
Hegemonic trading regimes emerge out of the interaction of all
of these processes in ways that foster their relative stability,
but these regimes also reflect the tensions between importing and
exporting states and firms, as well as competition between groups
of importers and groups of exporters. Rising economies must
respond to the same set of constraints, but must also rearrange
them in counter-hegemonic strategies that exacerbate and then
solve some of these tensions in ways that weaken the previous
regime and create space for a new one.
Charles Bettelheim (1972), in his comments on Arghiri
Emmanuel's (1972) Unequal Exchange, pointed out that relations of
unequal exchange are not in the first instance systemic but emerge
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out of binary relations. Philip McMichael (1984), writing about
the establishment of British hegemony over a system of free trade,
noted that trade relations between the British core and various
peripheral trading partners were tailored first to the specific
countries involved. The development of hegemony emerges out of the
multiplicity of these binary relations, and then becomes the frame
within which these relations are carried out and renegotiated.
This frame also constitutes in important ways the international
commodities and financial markets within which trade occurs,
affecting and restructuring those binary relations.
In this sense, the binary relations established are structured
simultaneously by the political and economic conditions of the
countries involved, by the point on the product moment trajectory
of the material in question, and by the number and types of other
economies exporting it. In this study we examine the ways that
relations between individual countries, and the quite distinct
conditions of different countries, are fashioned within a
successful counterhegemonic strategy by a country that was still
not the major importer, and far from the major consumer, of these
raw materials. Japan's raw materials access strategies were
fashioned from a minority position in the market, but, as we will
demonstrate, had enormous impact on the market.
Access strategies have changed over time and space in ways
that require both ecological and political economic explanations.
Historically, increased mass and diversity of materials consumed,
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economies of scale in extraction and processing, and the
progressive depletion of the sources most accessible to industrial
centers have combined with the absolute spatial fixity of most
mineral resources to increase mean distances between natural
resource extraction and industrial production. These increased mean
distances have heightened potential scale economies in transport.
These scale economies in turn reinforce the technologically driven
increases in the scale of extraction, because larger ships, larger
ports, and longer rail lines can only return sunk investments--
frequently dedicated to a single extractive enterprise-- with
larger shipments sustained over longer periods of time. These
dynamics restrict greenfield mining projects to large deposits, of
which there are relatively few. This further reinforces the
tendency towards increased distance between extraction and
consumption. It also increases the proportion of raw materials
transported across national boundaries prior to transformation, and
the likelihood that extractive enterprises dominate the economy and
politics of the regions, and sometime the nations, in which they
are located.
As distance and scale increase, mines tend to locate in areas
with sparse populations and little effective integration into
capitalist political, economic, and legal systems and with limited
access to technical information required for effective rent
bargains or for environmental or social regulation. Isolated
exporting nations compete against each other in negotiations with
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well-informed importing firms and states. The results are that raw
materials rents and prices remain low, and that damages to
environments are omitted from contract costs. Increased scale and
distance, however, also raise the strategic stakes for consuming
firms and the states of industrial societies. Particularly in
periods of shifting hierarchy between dominant industrial nations,
competitive strategies may induce excess extractive capacity,
destabilizing markets and increasing environmental impact beyond
the technological minimum required to satisfy world demand.
Japan's rise to challenge U.S. hegemony has resulted in excess
capacity, unstable markets, and increased environmental damages in
many raw materials extracting peripheries.
III. JAPANESE RAW MATERIALS ACCESS STRATEGIES
Japan's ascendence from the periphery to the core of the
capitalist world economy began during the Meiji period in the last
third of the nineteenth century. Japanese efforts to industrialize
and build a strong military paid early dividends in the form of
victory in the Russo-Japanese War at the beginning of the twentieth
century. Much of Japan's success was, however, due to its ability
to export light industrial products such as silk and to use the
proceeds to import both ships and steel plate for building military
and trading ships (Chida and Davies 1990). Efforts to deepen
industrialization in Japan during the first third of the twentieth
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century, most notably through expanding the steel, copper and
shipbuilding industries and through the creation of a domestic
aluminum industry, rapidly depleted Japan's limited coal, iron ore,
and copper reserves. Domestic depletion led Japan to adopt the
third strategy for continuing its ascendence in the world economy:
direct imperial conquest of neighboring resource-rich areas of
China, East Asia, and Southeast Asia. Japan's defeat in World War
II, however, foreclosed this ascendence and development strategy.
In order to support a rapid industrialization drive in the
years between the first and second world wars, the Japanese state
and Japanese firms sought to gain access to raw materials that were
being rapidly depleted in Japan via a strategy of imperial military
conquest in East and Southeast Asia. However, this raw materials
access strategy brought Japan into direct military conflict with
the United States, Great Britain, the Soviet Union, and China. The
results of this conflict were the defeat of Japan in World War II,
the dismemberment of Japan's empire, and severe economic and
political crises in Japan in the war's aftermath.
From the end of the war in 1945 until late 1947, the U.S.-led
occupation of Japan headed by the Supreme Commander for the Allied
Powers (SCAP), General Douglas MacArthur, had a number of mandates,
including purging of Japan's wartime leaders from positions of
military, economic and political power and breaking up the giant
zaibatsu industrial holding companies (U.S. State Department 1949;
Pauley 1945). U.S. policy toward its defeated enemy focused on the
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creation of a democratic, self-sufficient society in Japan that
would not be able to threaten its neighbors militarily again.
A fundamental flaw in these U.S. efforts, however was that the
Japanese government bureaucracy was left virtually intact by the
occupation forces. Japanese economic and political elites were
able to defeat, delay, and subvert many of these SCAP efforts
because SCAP was forced to work through the structure of the
Japanese government bureaucracy (Maki 1947). As Chitoshi Yanaga
(1968) argued in an influential book, "the most important functions
of the bureaucracy involve the protection and promotion of business
and industry, in whose behalf it formulates long- term economic
plans, makes forecasts, sets goals, and establishes priorities"
(Yanaga 1968:28). The three closely linked bases of the Japanese
political system, organized business, the party government, and the
administrative bureaucracy (Yanaga 1968:28) have acted in
coordination to guarantee long term access to increasing supplies
of raw materials to Japanese industry.
Beginning in late 1947, a dramatic "Reverse Course" of U.S.
policy toward Japan took place that undid many of the efforts of
the initial occupation period. This resulted from the perceived
geopolitical threat to U.S. hegemony in the region presented by
communist regimes in the Soviet Union and, after 1949, in China.
Additionally, there was also tremendous opposition from U.S.
business interests which had ties to zaibatsu prior to the war, and
which saw Japan as a prime location for foreign investment and
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sales (Bisson 1949:95-99; Ball 1949; Bisson 1954:41-43; Hadley
1970:144-146).
The combination of obstructionism by Japanese political and
economic elites and this "Reverse Course" decision restored to
political and economic power in Japan the elite leadership that had
planned and carried out Japan's imperial strategy in the 1930s and
1940s (Bisson 1949:95-99; Ball 1949; Bisson 1954:41-43; Hadley
1970:144-146). Industrialization and the maintenance of the
existing economic and political order were once again the central
foci of Japanese government and Japanese firms' strategies.
However, imperial conquest had been foreclosed as a raw materials
access strategy by Japan's defeat and the prohibitions on Japan's
military imposed by the SCAP-written constitution.
However, new raw materials access strategies were formulated
in the late 1940s through the coordinated efforts of the SCAP and
the Japanese economic and political elites and government
bureaucracy. SCAP and the Japanese leadership in the late 1940s
and early 1950s carried out extensive efforts to assess Japan's
domestic raw materials resources and their potential to meet the
needs of the rapidly growing but severely impoverished Japanese
population. The results of these efforts indicated that, out of
the 40 minerals considered of major importance to industrial
production at that time, Japan had domestic resources of only
eleven adequate to its needs for the foreseeable future, including
coal for electricity generation. Copper and three other minerals
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were considered to be available domestically in substantial
amounts, although at a relatively high price. Eight minerals were
in deficient supply domestically, including iron, manganese and
tin, while 17 minerals were strongly deficient or completely
lacking in terms of domestic resources, including aluminum
(Ackerman 1953:303). High quality coking coal was also almost
completely unavailable in Japan, forcing Japan to rely on imports
of high quality coking coal which was then typically mixed with low
quality Japanese coal in steelmaking. Northern China had supplied
coking coal to the Japanese steel industry prior to 1945, but the
geopolitical foreclosure of this supply option meant that the U.S.
had become Japan's dominant coking coal supplier after 1945, even
though these imports had to be paid for in scarce dollars (Ackerman
1953:182). The search for alternative sources of coking coal would
become the pioneering effort in establishing Japan's raw materials
access strategies based on state-firm cooperation. This paper will
now turn to an examination of the evolution of Japanese access
strategies for coking coal and iron ore, two raw materials that
Japan lacked domestically but which are the critical inputs for the
steel industry, a leading sector of the Japanese economy in the
post-World War II era.
IV. COAL
The steel industry was selected by SCAP and the Japanese
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government in the late 1940s as one of the two leading sectors of
the Japanese economy on which the Japanese state and Japanese firms
would focus their limited economic resources (Hein 1990; Chida and
Davies 1990). The electric power and shipbuilding industries were
added to the list of leading sectors by the Japanese state and
organized business during the 1950s and became major pillars of
Japanese economic development (Hein 1990; Chida and Davies 1990).
The organizational forms, knowledge, and technologies that a
rising economy must develop in order to satisfy its growing and
changing raw materials requirements themselves constitute the
capacities needed for world system dominance, both in terms of
production and in terms of strategic relations aimed at achieving
secured raw materials flows at minimal cost. The rationalization
and modernization of the steel and shipbuilding industries during
the 1950s and 1960s was based on the importation of methods of
organizing production developed in U.S. steel mills and shipyards,
the training of Japanese engineers, managers and workers by U.S.
firms and experts, and the transfer of advanced technologies from
the U.S. to Japan in these industries (Hein 1990; Chida and Davies
1990), including the now famous W. Edwards Deming's ideas about
quality. However, Japan's shortage of domestic raw materials meant
that new international forms of organization and trade relations
had to be established to supply these rapidly modernizing
industries with essential raw materials. In this arena as well,
the SCAP occupation provided a foundation on which the Japanese
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state and Japanese firms could develop a model for gaining access
to raw materials in other areas of the world, particularly in
Australia.
There was no well-developed world market for metallurgical or
steam coal in the late 1940s and early 1950s on which Japan could
rely for spot purchases of rapidly growing amounts of coal, nor was
there sufficient exploration and planning for new mines anywhere in
the world to meet Japan's growing coal needs. There was also no
shipping technology adequate to move tens of millions of tons of
coal and iron ore thousands of miles to Japan. The Allied
Occupation Forces in the late 1940s and the Japanese government
from the early 1950s onwards recognized the essential importance of
securing adequate raw materials for Japanese industrialization and
economic growth. U.S. Cold War-related opposition to Japanese raw
materials purchases from China and the U.S.S.R. was maintained
after the end of the Korean War, and forced the U.S. and Japanese
governments to look farther afield for sources of raw materials for
steel production. These efforts also faced two other important
constraints. Japan's actions in World War II had made Japan
extremely unpopular with other Pacific Rim nations, making nations
in the region unwilling to allow either Japanese direct investment
or trade with Japan. Additionally, from the end of World War II
until the early 1970s, Japanese firms and the Japanese economy as
a whole lacked the capital resources necessary to supply large
scale foreign investment in raw materials extraction, with strict
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government controls on foreign exchange and investment activities
in place throughout the period.
At the same time, in the early 1950s Australian firms and
state agencies were searching for ways to increase steam coal
exports to generate export revenues, economic growth, and
employment (Panda 1982). However, the Australians had no plans to
export metallurgical coal, the type of coal critical to Japan's
steel industry and therefore its heavy industry-based development
plans. From 1951 onward, U.S. government officials in Australia
sought to promote the idea of exporting metallurgical coal to
Japan, supported by World Bank loans (Priest 1993:13- 14). These
early U.S.-led efforts to gain access to Australian metallurgical
coal eventually did help lead to the first Australian metallurgical
coal exports to Japan in the second half of 1953. These exports of
100,000 tons of coking coal were contracted for by the Japanese
Procurement Agency, a part of the U.S. Army occupation government
of Japan (Priest 1993:22).
This export of metallurgical coal in 1953 set an important
precedent for Australian metallurgical coal exports to Japan.
Mining firms had become willing to consider exports to Japan
because of decreasing domestic demand for black coal due to the
substitution of petroleum in electricity generation, locomotive
power, and furnace oil (Priest 1993:30-32). Changing technological
and economic conditions in a resource-rich nation, Australia, thus
helped to pave the way for the establishment of a long term
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metallurgical and steam coal supply relationship between Japan and
Australia. Exports to Japan expanded very rapidly from the
mid-1950s onward, with exports to Japan increasing from a mere
8,976 long tons in 1955-56 to 7.7 million tons in 1965-66. During
this ten-year period, Japan's share of total Australian coal
exports increased from a mere 4.4% to 94.4% (Raggat 1968:335),
making Australia extraordinarily dependent on Japan as the
purchaser of almost all of Australia's coal exports.
The key to the expansion of metallurgical coal trade between
Australia and Japan was the formalization of this trade
relationship that began under SCAP's guidance in the form of long
term contracts (LTCs) between the Japanese steel mills and
Australian and transnational coal producing firms. The first long
term supply contract was signed at the end of the 1950s; a number
of other metallurgical coal mines were also developed during the
1960s, 1970s and 1980s to supply the Japanese market (Koerner
1993:77; Panda 1982:94; Frost 1984:51; Scott 1979:15). As a result
of this capacity expansion, Australian metallurgical coal exports
to Japan increased from 7.7 million tons in 1966 to 27 million tons
in 1977. This metallurgical coal trade relationship between
Australia and Japan has thus become an essential pillar to support
the dramatic expansion of the Japanese steel industry.
These long term contracts (LTCs) were for all or the majority
of a mine's annual production, and were signed after a coal deposit
had been explored and a mine proposal developed. The LTC was then
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used to obtain financing, often with partial funding from Japanese
banks and the Japanese government, but typically with the majority
of loan funds coming from major U.S. and European banks. The
Japanese trading companies which often arranged transport and
sometimes the sale of coal and the Japanese steel mills which
consumed the coal supplied little or none of the equity capital
required to open the mine, simultaneously avoiding the problems of
capital shortage for foreign investment and transferring the risk
of the project to the transnational mining firm(s) which own the
mine and to the banks which supplied credit. Japanese capital
investment in mining operations was limited to at most small "good
faith" investments in joint ventures and loans which would be
repaid by sales under these long term contracts.
Japanese steel mills, with the assistance first of SCAP and
later of the Japanese state, had thus devised a model to guarantee
long term secure access to metallurgical coal from Australia. The
Japanese steel mills developed a new model of LTCs, rather than
using the wholly-owned foreign direct investment model utilized by
U.S. and European steel firms to gain access to foreign raw
materials sources. This new model also accommodated the resource
nationalism of host nations such as Australia. Metallurgical coal
was extracted by Australian and transnational firms, and then
transported by Australian state-owned railroads to typically
state-owned ports where it was loaded on Japanese ships for the
trip to Japan. This transport pattern allowed Japanese steel mills
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and shipping firms to take advantage of the tremendous economies of
scale available in bulk shipping to dramatically reduce production
costs of steel in Japan. This organizational innovation of the use
of LTCs, coupled with technological innovations in transport,
combined to allow Japanese steel firms to gain access to raw
materials outside the control of the existing major steel firms,
allowing the Japanese firms to compete very effectively with these
previously dominant firms. By taking advantage of the naturally
provided coal and, later, iron ore resources of Australia, the
interests of the Australian state and TNC mining firms profited
from Japan's economic growth. Meanwhile, facilitated by the
changing technologies of transport and steel production, the
Japanese steel industry developed into a leading sector of the
Japanese economy.
While this pattern was well suited to Japanese needs and
initially allowed Japan to resume trade with Australia despite
Australian antipathy toward Japan, this transfer of risk to
exporting firms and nations has often proven to be quite
deleterious to these firms' and nations' interests in the long
term, even though the original idea for these LTC arrangements came
from the Australians (Priest 1993:20-25). For example, Koerner
(1993) found that "Pacific metallurgical coal markets have suffered
significant distortion as a result of the resource procurement
strategies of the Japanese steel industry establishment" (Koerner
1993:79). On the demand side, the Japanese steel mills' joint
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negotiating strategy resulted in a bilateral monopoly, precluding
competition on the demand side, while on the import side Japan's
diversification strategy led to destructive competition between
firms, state governments and coal exporting nations. Additionally,
"the substantial transport component of delivered cost creates a
situation of bilateral monopoly bargaining over the distribution of
locational rents" (Koerner 1993:79), while the knowledge asymmetry
between Japanese and suppliers' negotiators has similarly favored
Japanese interests. The sum total of these advantages, Koerner
argues, can be seen in the producer surplus lost to Australian coal
producers on the 365 million tons of metallurgical coal exported to
Japan since the early 1960s at US$3.6 billion in 1987 dollars
(Koerner 1993:79).
Another dimension of the burden imposed on raw materials
exporting regions by this Japanese metallurgical coal access
strategy is the cost of transport infrastructure to move coal from
mines to ports. Huge investments in railroad and port facilities,
typically undertaken by national and state governments in areas
such as Australia, Canada and the United States, have been
essential to making coal available at competitive prices to
Japanese consumers; without these investments, it simply would have
been impossible for Japan to acquire enough metallurgical coal to
permit the rate of growth of its steel industry in the post-World
War II era. While the governments and state-owned firms in raw
materials regions have collected taxes and revenues from these
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exports, and domestic and transnational firms have typically been
able to profit from these exports, these firms and governments have
also been forced to bear a disproportionate share of the risks
involved in making possible Japan's tremendous post-World War II
economic growth. From the point of view of a particular firm or
state organization, bearing risk is a potential cost which ought to
require a larger return on its investments as compensation for
accepting this risk; in the case of LTCs between the JSM and coal
exporting firms in Australia, Canada and the U.S., however, there
is little evidence that these risks and rewards were
proportionately distributed. The Japanese steel mills were able to
transfer a large share of the burden for meeting their coal needs
to the raw materials-extracting periphery, allowing the Japanese
steel mills to devote their resources to modernizing their own
plants in order to compete (very effectively) in the world market.
V. IRON ORE
Japanese steel mills and the Japanese state have used a
similar strategy to gain access to supplies of imported iron ore.
Prior to World War II the Japanese had been interested in
establishing a trade relationship with Australia for the export of
iron ore to Japan. The key to these efforts had been a major
foreign investment by the Nippon Mining Company in 1936 of 450,000
British pounds in the Yampi Sound Mining Company to develop the
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Koolan Island iron ore deposits in Western Australia, with the ore
to be shipped to Japan in Japanese ships. However, on May 19,
1938, the Australian government ordered a total embargo on iron ore
exports from Australia to any other nation. While the publicly
stated reason was concern over the limited amount of Australian
iron ore resources for its domestic steel industry, the major
reason was Australian concern over Japan's imperial expansion plans
which were feared to include southward expansion to include
Australia (Panda 1982:60- 61).
This sudden elimination of a major potential source of iron
ore forced the Japanese government to focus on exploration and
development of iron ore within the boundaries of the Japanese
empire, including in the Yangtze region of China, the Philippines,
French Indochina, Malaya, Korea, and particularly Manchukuo, and in
Japan itself. These sources, plus scrap iron, were to provide the
major sources of steel raw materials during World War II (Panda
1982:59- 62).
After World War II, given Japan's limited domestic iron ore
resources, new foreign sources had to be found to permit the
expansion of the Japanese steel industry. During the early and
mid-1950s, East and Southeast Asia were Japan's major sources of
iron ore. Long term supply agreements were established with mining
companies in the Philippines, the state of Orissa in India, and
Hong Kong; however, the cost of transporting iron ore from these
areas to Japan were very high. By the end of the 1950s, Japanese
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steel firms had also begun to acquire iron ore from even more
distant sources, including Peru, Chile and Brazil. Control over
the shipping of their iron ore imports allowed the Japanese steel
firms to take advantage of the economies of scale that were
becoming available in bulk shipping on Japanese-built and
Japanese-owned ships, typically owned and operated by companies
belonging to the same industrial group (Panda 1982:63-67). As was
the case in metallurgical coal, the combination of LTCs with
foreign mining firms and Japanese firms' control over the transport
of these raw materials to Japan allowed Japanese steel mills to
gain access to growing volumes of iron ore imports at competitive
costs.
However, the most important change in Japan's post-World War
II iron ore importing situation occurred with the lifting of the
Australian embargo on iron ore exports in December 1960. The
lifting of the ban stimulated a tremendous boom in exploration for
iron ore in Australia, because Australian and TNC mining firms
would now be able to profit from extraction for export. In the
early 1960s, Australian iron ore producers focused on exporting
iron ore to Europe, but the long distance and resulting high
transport costs made this trade extremely expensive and largely
uncompetitive. In the mid-1960s, Australian iron ore exporting
firms began to turn to the Japanese market because of its relative
proximity and rapidly growing demand for iron ore. The Japanese
steel mills signed LTCs with several major Australian iron ore
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mines. These ten to sixteen year contracts provided a guaranteed
market which made possible the rapid expansion of iron ore mining
in Western Australia and other parts of Australia. As a result of
these LTCs, Australian iron ore exports to Japan increased from
200,000 tons in 1965 to 47.8 million tons in 1977 (Panda
1982:64-73).
Also during the late 1960s, the Japanese steel firms continued
their efforts to diversify their sources of iron ore and reduce
their iron ore costs through negotiations and exploration in
Alaska, Guinea, South Africa and Chile. These efforts to develop
new sources of iron ore outside the control of U.S. and European
steel firms resulted in the establishment of long term contracts
with Chile and Brazil (Panda 1982:63).
The Japanese steel firms and the Japanese state have developed
a raw materials access strategy that guarantees long term access to
large volumes of iron ore from distant raw materials rich regions
which have become highly dependent on trade with Japan. Control
over shipping by Japanese importers has allowed the benefits of the
increasing scale of ocean shipping to accrue to Japanese iron ore
consuming firms. Further, in order to reduce the shipping costs on
long hauls from Brazil and Australia, many Japanese steel and
shipping firms have developed triangular trading patterns, often
involving crude oil transport in ships known as combination
carriers or ore-bulk-oil carriers (which means that these ships can
carry a variety of bulk raw materials, ranging from minerals and
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grains to liquid petroleum). These triangular trading patterns
reduce the amount of time that large bulk carriers spend sailing
empty, thereby reducing the cost per ton of transporting iron ore
and other cargoes (Penfold 1984). Organizational and technological
innovations have allowed the Japanese steel firms to become
competitive in world markets, despite lacking domestic sources of
huge volumes of raw materials.
However, as was the case in metallurgical coal, there have
been negative consequences for exporting regions from Japanese raw
materials access strategies in iron ore. The tremendous bargaining
advantage conferred by the combination of coordination between
Japanese steel firms, the diversification of their supply sources,
and their dominant position as a purchaser results in quite
favorable terms of long term contracts governing iron ore sales to
Japan. In Australia in particular, Japan's single largest source
of iron ore, this is exacerbated by competition between Australian
states, between Australian state and federal governments, and
between iron ore producing firms for contracts with Japan. The
result has been severe downward pressure on iron ore prices,
further benefitting the Japanese steel firms (Panda 1982:79-86).
Similar inequalities in relative strengths of bargaining positions
between the Japanese steel firms and other iron ore exporting firms
and nations, including Brazil, have produced similarly favorable
results for the Japanese steel firms.
Examination of changing patterns of international trade in
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iron and coal, with particular attention to Japanese investments in
these materials and in their associated transport, show that
another major component of the success of the Japanese steel
industry has been the development of large ports not only in Japan
but also in the countries from which it imports these materials.
Much of the capital risk has been assumed by the exporting nations,
though the transport efficiencies achieved have also required major
relocation of the steel industry around large deep water ports in
Japan. The organization of efficient transport is the major
Japanese accommodation to the physical characteristics of coal and
iron--its very great weight and volume to value. On the other
hand, Japanese investment strategies in both iron and coal also
defy these physical characteristics. In order to achieve stability
of supply, Japanese steel mills and the Japanese state have
promoted joint ventures and long term contracts with mines in very
diverse places, including Canada and Brazil, as well as the more
proximate Indian, Australian, and Malayan sources. In Australia
and Canada particularly, governments and firms have both accused
the Japanese of deliberately fostering overcapacity, and in both
places the Japanese steel mills have refused to honor the longterm
contracts that originally guaranteed the loans for the development
of the mines. The Japanese steel mills continue, however, to
balance proximate sources with more distant ones, using the
efficiency of transport to diminish the extra costs of diversifying
supply.
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VI. TRANSPORT
It is most dramatically in transport, and in the association
of shipbuilding with the steel industry in Japan, that the clear
link between Japanese raw materials access strategies and its
effect on the world economy emerges. Transport has played a
variety of roles as a component of Japan's post-World War II raw
materials access strategy, and of its broader economic development
strategy. By 1984 Japan accounted for 17% of total world seaborne
imports in terms of volume because of the huge volume of raw
materials imports needed to supply Japan's rapid economic growth,
making Japan by far the world's most important importing nation
(Stopford 1988:141).
The transport dimension of Japan's raw materials access
strategy has focused on making possible the tremendous expansion of
raw materials imports at competitive cost levels necessary for
Japan's industrial expansion since World War II. Petroleum, iron
ore and coal have been the most important imports in terms of
volume, although bauxite, alumina, aluminum, copper concentrates,
liquefied natural gas, and a host of other minerals have also been
imported in increasing volumes during this period. The key
elements of transport as a raw materials access strategy have
included research and development on the construction of larger
petroleum tankers and bulk carriers, and the construction of large
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shipyards capable of building such large ships. These large ships
are owned and operated by Japanese shipping firms associated with
the major industrial groups; these Japanese industrial groups
control ocean shipping of raw materials on an FOB raw materials
exporting port basis, so that any reductions in transport costs
caused by technological improvements or changes in world shipping
market conditions are captured by Japanese importers. The
construction of large scale port and railroad infrastructures in
raw materials exporting regions paid for by extractive region
governments and/or raw materials TNCs is based on long term
contracts for raw materials supply with Japanese importing firms to
allow the efficient use of these large ships. Additionally, the
Japanese government provides subsidies for the construction of
Maritime Industrial Areas in Japanese ports, which eliminate the
need for internal transshipment in Japan of raw materials imports.
The volume of raw materials in transmaritime trade has
quadrupled at least since 1960, in large part as the result of
Japan's economic growth, and the available economies of scale have
increased proportionately. Capturing economies of scale in
transport requires the construction of massive port systems,
capable not only of accommodating large boats but also of loading
them and unloading them quickly enough to prevent incurring the
huge costs of stranding the capital intensive ships for long
periods of time in harbor. The costs of building such ports have
enhanced a feature of all constructed transport systems, that is,
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that to the extent that exporting and importing systems must be
physically compatible to take advantage of cost-saving
technologies, importers can tie exporters to their markets by
fomenting mutually compatible port systems at both ends of the
voyage. One of the clearest indications of the increasing power of
Japan and, to a lesser extent, the EC in the world system is their
much more rapid construction of such systems, both at home and in
selected parts of the periphery and semiperiphery. Japan's
topography favors such port systems, but the state and heavy
industrial firms have collaborated in reshaping the domestic and
the international environment in such a way as to maximize these
advantages.
Shipbuilding and the steel industry constituted two of the
Japanese government's linchpins for planned development in the
post- World War II era. The two industries sustained each other in
critical ways. An efficient shipping sector was critical for the
importation of the raw materials that would be essential to Japan's
successful competition in the world market, while steel was the
critical input for shipbuilding. The Japanese strategy for
developing a competitive steel industry was based on promoting
plants that maximized scale economies, and then assuring that they
ran at full capacity. During the apogee of the shipbuilding
industry it absorbed as much as 35 percent of steel output, and it
also fostered a number of ancillary industries that eventually
became autonomous. The efficiency of shipbuilding depended on
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cheap steel, and cheap steel depended on cheap transport. The
Japanese dominated the shipbuilding industry, achieving economies
of scale sustained by their exports, while the steel industry
benefitted from the huge ports and large boats that the
shipbuilding industry provided. Tremendous synergies emerged
between the two industries, with the growth of each contributing to
the other's growth as well.
Steel and shipbuilding enjoyed subsidies and tax breaks which
were far greater than almost any other sector, reflecting the role
of these two industries and motor vehicles as the three pillars of
post-World War II Japanese economic development strategy and the
state- firm cooperation that has guided Japan's development. The
cumulative result of various forms of state support were to provide
these large scale, capital intensive industries with low cost
capital which permitted the massive initial investments and
continual investments in expansion and modernization which allowed
these industries to become world leaders during the period.
VII. COPPER
At the end of World War II, Japan had a small domestic supply
of copper and a long-established domestic copper mining and
processing industry. The post-war assessment of Japan's domestic
raw materials supplies indicated that sufficient amounts of copper
were available to meet Japanese industrial demand for the
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foreseeable future, but only at a relatively high cost (Ackerman
1953:303). Rapid economic growth in the 1950s combined with
increasing depletion of domestic resources to lead Japanese copper
firms to search for foreign sources of copper ore. By 1955, Japan
was already dependent on imports of copper ore and concentrates
(copper ore which had undergone a relatively technologically simple
and inexpensive processing step to reduce the amount of waste
included in the ore) for 37.7% of its copper needs (Vernon
1983:131).
The earliest Japanese direct investments in overseas metals
appear to have been in copper mines, and were motivated, according
to Vernon (1983:100), primarily by the instability of copper prices
on the London Metals Exchange. Japanese direct involvement in
foreign copper mines began in 1953 in the Philippines. Several
mines were developed in the Philippines to export copper ore and
concentrates to Japan in the 1950s and 1960s. However, by the end
of 1972 Canada had become Japan's largest supplier as the result of
minority equity participation in and long term contracts with new
major copper mines, particularly in western Canada (USBM 1972:484).
Additionally, in the early 1970s LTCs and equity participation from
Japanese copper firms also brought a number of other major new
copper mines onstream which produced copper ores and concentrates
for export to Japan. These projects were located in a number of
raw materials extracting peripheries, including Papua New Guinea,
Indonesia, Zaire, Iran, and Malaysia (USBM 1972:484-485). Japan
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accounts for about 60% of the expanding world trade in copper
concentrate, a clear indicator of Japan's dominance of this trade.
However, by the mid-1970s in the wake of the first oil price
shock and the resulting worldwide recession, a very unusual pattern
emerged in Japanese copper firms' search for supplies of copper
concentrates, supported by the Japanese state. While continuing to
explore for new sources of copper in many parts of the world, to
negotiate new long term contracts, and to form new joint ventures
with new suppliers of copper concentrates, Japanese copper firms
also engaged in renegotiating price and volume terms of existing
long term contracts with mines in which they did not hold equity
stakes. During 1974, for example, Japanese copper firms signed
agreements to explore for or to develop copper deposits in Papua
New Guinea, Saudi Arabia, Australia, Zaire, Chile, Peru, and Panama
(USBM 1974:543). At the same time, Japanese copper firms had
negotiated for and won cutbacks in long term contract volumes with
mines in Papua New Guinea, Canada, and the Philippines (USBM
1974:543). This pattern of continuing to search for new sources of
copper concentrates even in periods of stagnant demand and falling
prices, while simultaneously seeking to impose price and volume
cuts on existing suppliers in which Japanese copper firms did not
have equity participation, has characterized Japan's copper
concentrate supply strategy over the last twenty years.
The Philippines retained their second position as a copper
concentrate supplier to Japan until the end of 1984, when the U.S.
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became Japan's second largest copper ore supplier (USBM Various
Years; Metallgesellschaft Various Years). The tightening of
environmental regulations in the United States, and the high cost
of meeting these requirements at many old U.S. copper smelters and
refineries, combined to make significant volumes of U.S. copper ore
and concentrates available for sale to Japan from several U.S.
copper firms in the early and mid-1980s. This has transformed a
large part of the U.S. copper industry from a vertically integrated
oligopoly supplying the U.S. and world markets for copper-based
products, into a supplier of raw materials to the Japanese copper
industry.
This Japanese copper access strategy also led to a major
change in the structure of the copper industry between 1950 and
1988 that is most evident in the degree of territorial integration
or decentralization of the stages of processing. Copper smelting
historically has occurred close to the mine. Copper smelting is
relatively simple technically and involves relatively low fixed
costs in comparison with many other metal processing plants, while
the relatively low grade of most copper ores means that there are
large transport economies to be achieved by smelting near the mine.
However, since the 1950s increasing copper concentrate exports have
led to an increasing spatial separation of the stages of the copper
industry, despite the natural, technological and economic factors
favoring integration.
This shift is remarkable, given the cost disadvantages of
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transporting concentrate (which usually have only about 30% copper
content) instead of blister or anode copper. Japanese copper firms
have solved this problem by economies of scale in shipping and in
processing. By concentrating the copper smelters and refineries
spatially in Japan, they have also achieved economies of scale that
allow for the capture of potentially polluting byproducts that are
too expensive to process in small batches and too costly to
transport over long distances. Thus, sulphur dioxide is
transformed into sulfuric acid, while the cadmium, lead, arsenic
and other minerals commonly associated with copper ores are used
instead of being dispersed into the environment. Japanese copper
firms use long term contracts to stabilize supplies, and so can
also be assured that they can stabilize the types and grades of
ores imported. This means that they can use the capacity required
for by-product capture on a regular basis, without having to adjust
to the variable mineral and chemical composition of ores from
different sources.
Efficient transport and adaptation to the diversity of
chemical and mineral ore composition allowed the Japanese state and
copper firms to overcome the physical and spatial logic that had
dictated spatial integration of the industry, helping to destroy
the existing copper oligopoly in the process and making large
supplies of low cost copper available for Japanese industry.
[Page 39]
VIII. ALUMINUM
The case of aluminum is more complex than that of copper,
since Japanese aluminum firms and the Japanese state used joint
ventures to overcome oligopolistic control of the world aluminum
market and in the process radically changed the environmental and
spatial logic of that market. This was done by transferring
capital risk and cost to resource-rich countries.
The Japanese strategies to gain access to aluminum constitute
the mirror image of their strategies in copper. Unlike copper,
the physical characteristics of aluminum-- relatively homogeneous
ore of high grade and easily transported-- early on fostered
spatial dispersal of the levels of processing. Smelted copper may
weigh as little as 2 percent of the weight of the ore from which it
has been reduced, and even processing into ore concentrate achieves
more than a three to one reduction of weight. The reduction of
bauxite to alumina involves only about a 50 percent reduction of
bulk, while alumina must be protected from moisture and is
therefore by weight more costly to transport. The high capital
barriers to alumina refining in relation to the small gains in
transport cost had constituted a major barrier to those
bauxite-rich countries that aspired to in-country processing.
Japanese aluminum firms and the Japanese state, acting in
coordinated consortia, played to these aspirations by offering
joint ventures in smelters to bauxite and hydro-electric rich
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nations. They thus created an incentive to get host government
support of hydroelectric dams and other infrastructure. The
Japanese consortia fostered spatial integration to break the
vertical integration of the oligopoly. In the process, they created
large amounts of excess capacity in the world, leading to long term
decline and continued instability of prices. They managed to
devolve much of the cost of this on the bauxite-rich nations, whose
investment decisions would have made sense under the price
stabilizing oligopoly but were disastrous under the highly
competitive market conditions that the Japanese aluminum firms
helped create.
The Japanese consortia did not invent joint ventures, nor were
they the first to use them in aluminum smelting. The first
significant joint ventures in aluminum smelting were negotiated in
the 1960s, and in bauxite extraction as early as the 1950s. The
joint ventures of the late 1960s and early 1970s somewhat diluted
the six-firm oligopoly's control of extraction and refining, but
the only concession on the part of the North American and European
aluminum oligopolists on the more critical supply of primary
aluminum--that is, control over smelting--was to Australian,
Japanese, Mexican, and Venezuelan smelters too small to supply more
than domestic markets.
Japanese consortia have used joint ventures in aluminum in a
very different manner. Rather than treating joint ventures as
special concessions made to gain access to protected markets or to
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share control with other firms likely to adhere to oligopolistic
price regulation, the Japanese consortia sought to reduce their
direct investment, taking minority positions with Brazilian,
Venezuelan, and Indonesian state-owned firms and with Australian,
New Zealand, and Canadian private firms. Also, Japanese
coordinated public and private investment has been aimed at
lowering prices and stabilizing supply by increasing and
diversifying sources, rather than stabilizing prices by deterring
entrants and restricting sources.
The experiences of the so-called "Nixon Shock" (an embargo on
soy exports from the United States), together with the fright of
OPEC and the first oil shock, enhanced fears of dependence on other
core firms for raw materials and enhanced official support for
"resource diplomacy" and the creation of either tied sales with
exporting countries or some form of equity investment. Japan
itself did not have sufficient capital for foreign direct
investment in all of the resources required, nor were many
potential host countries well disposed to fully financed foreign
direct investment. However, the huge surplus of finance capital
available after the first oil shock combined with the aspirations
of many countries to control the exploitation of their own minerals
to create optimal conditions for the kinds of joint ventures that
ultimately opened up the international market in aluminum and
created a price-lowering surplus capacity.
There was no attempt to regulate prices upward. On the
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contrary, the Japanese consortia investments often included end
consumers and fabricators as well as primary producers in
agreements mediated by MITI, Keidanren, and various sogo shosha
(Japanese trading companies), with the declared purpose of assuring
cheap and stable supplies. The Japanese EXIM Bank intervened in at
least one case of shareholder concern that the prices of aluminum
would be too low to compensate their investment, reducing its
interest rates sufficiently to keep the Japanese smelters in the
consortium with Brazil. In Indonesia, the Japanese consortium
negotiated to reduce their share in equity. Where possible, the
Japanese joint ventures were restricted to the smelters themselves,
and the national state invested in the associated infrastructure of
dams, transmission lines, roads, and ports. The Japanese consortia
have also tended to invest further downstream than the joint
ventures of the majors, eschewing mines and refineries and
concentrating on smelters.
While there are key differences between Japanese and earlier
major joint ventures, both types of expansion have converged in the
creation of uncontrolled excess capacity. Average smelter size
more than doubled between 1954 and 1974, and more than tripled
between 1954 and 1989. The increased scale of investment itself
necessarily makes supply less sensitive to demand, as investment
becomes increasingly lumpy. Even partnerships between major firms
with a common interest in regulating prices may impede quick
decisions in response to market downturns (Author's Interview with
[Page 43]
Alcoa Executives in June 1990). At the same time, the number of
firms in the aluminum industry nearly doubled from 1954 to 1969,
increased by almost as much again in the next five years, and by
1989 was three times what it had been 35 years earlier (Ciccantell
1993). Clearly, even before the massive expansion of Japanese
smelting capacity from 1969 to 1979 the oligopoly was losing
control over world capacity and the ability to regulate prices.
This loss of control became most evident in 1977, when
aluminum was quoted for the first time on the London Metals
Exchange, reflecting the emergence of a significant spot market.
Such a market could not exist as long as a few companies dominated
supply and managed sales through long-term contracts or intra-firm
transfers. This loss of control, or at least its full
implications, were not immediately evident to the major firms or
even to the smaller ones at the time, however, and many of them
continued to make investment decisions based on the assumption that
prices would remain stable or increase. In Brazil, for example, a
Japanese consortium had induced the Brazilian government to assume
fully the costs of building a hydroelectric dam and transmission
lines to support a joint venture in smelting between the Japanese
and a Brazilian state company, and thus increased world capacity at
relatively little cost to the Japanese partners. When Alcoa
responded by building a second smelter nearby, it enhanced the
capacity expansion without in any sense increasing or protecting
its own market control, and thus effectively played into the
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Japanese interest in a diversified competitive market for this raw
material.
Aluminum has, over this period, tended towards somewhat
increased amounts of territorial integration, with the more refined
product increasing its share of total world trade (Table 1).
TABLE 1
CHANGING PROPORTIONS OF LEVEL OF PROCESSING IN THE WORLD
ALUMINUM TRADE
BAUXITE (1), ALUMINA (2), AND ALUMINUM (3)
(OOO tons in total exports)
1962 1975 1988
1. 16,980,220 27,950,470 27,781,130
2. 1,101,203 9,460,968 12,169,070
3. 958,961 2,940,328 8,785,369
In terms of contained aluminum, bauxite constituted over 70% of
total trade in 1962, less than 45% by 1975, and less than 30% in
1988. In the same time, aluminum constituted about 20% in 1962,
just over 20% in 1975, but by 1988 accounted for over 40%. In
terms of value, the changes are even more dramatic.
In short, we see a significant growth of the proportion of
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alumina in trade between 1962 and 1975, and then major growth in
the proportion of aluminum traded between 1975 and 1988. This is
quite remarkable, as bauxite and alumina are both far more readily
transportable than is copper concentrate. The more transportable
of the two industries is moving toward spatial concentration,
while the less transportable commodity is being traded more. While
there were a greater number of forces leading to the spatial
integration of aluminum than there were leading to the spatial
dispersal of copper, the Japanese aluminum firms in conjunction
with the Japanese state played a major role in restructuring the
aluminum industry. The huge excess capacity in that industry, even
before the massive entry of former Soviet smelters into the market,
was in large measure a product of these strategies to supply Japan
with aluminum.
IX. CONCLUSION
U.S. strategies to secure access to minerals during its rise
to industrial and military preeminence responded to the political
organization of the world in the early and middle 20th century. In
the 1920s and 1930s, the Council on Foreign Relations elaborated
geopolitical schemes for securing access to critical and strategic
materials and proposed international financial institutions to
stabilize investment flows and costs. World War II and the Bretton
Woods Conference created the conditions for the concrete
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realization of these schemes. As Britain had in the 1820s, the
U.S. in the 1940s and 1950s manipulated nationalist aspirations to
secure access to resources under European colonial control. It
also used Europe's desperate need for capital to coerce access
through the threat of withholding Marshall Aid (Bunker and O'Hearn
1992). The World Bank and the IMF have served to palliate the
economic distortions of U.S. political and economic intervention in
raw materials exporting countries, and to ensure that exports
continue despite economic crises.
Japanese firms and the Japanese state confronted a very
different situation as they began their industrial ascent in the
1950s. The U.S. had faced a weakened imperial system run by
decapitalized industrial powers already in relative decline. Japan
faced a politically and economically vibrant and still expansive
core competitor that directly controlled the majority of natural
resources through direct investment and ownership. The U.S.
government, both during the Occupation period and during the 1950s,
supplied significant assistance to initial Japanese efforts to gain
access to new raw materials sources, but the bulk of the
responsibility for creating new raw materials supply systems fell
to Japanese raw materials firms and the Japanese government. Japan
had far less capital at its disposal than the U.S. had after World
War II. In the intervening years, the scale of extractive,
processing, and transport technology in most minerals had increased
and many underdeveloped but resource-rich nations were far more
[Page 47]
exigent in their resource contracts than they had been. Japan also
had to confront the most dramatic manifestation of these exigencies
in the middle phase of their ascent when OPEC pushed up oil prices
in 1973 and 1979, greatly raising energy costs for industrial
processes and for raw materials transport.
Japan has turned some of these obstacles to its own advantage.
They have solved the problems of increased investment scale in
extraction and processing, and of nationalist demands for control
over and development from mineral extraction, by exploiting
indirectly the large surpluses of finance capital that resulted
from the oil shocks of the 1970s through the development of new
forms of investment--joint ventures with poor and indebted states
willing to assume even greater levels of debt. In some cases,
however, the host country participation was driven by a desire to
achieve sovereign and technical control over their own resources
and to construct downstream linkages around extractive revenues and
infrastructure. This has been clearest in the case of aluminum,
where national aspirations to forward linkages from mine and
further deepening of industrial transformation has inspired states
with extensive experience of import substitution industrialization
to commit large sums of public money to infrastructures and
industrial plants, including smelters. In other cases, host
country participation seems to have been driven more by desire for
access to revenues and rents. These countries, poorer and less
developed, have been host to investments in copper mining without
[Page 48] Journal of World-Systems Research
the forward processing capacity to add value domestically, and
therefore dependent on the existence of smelting and refining
capacity elsewhere.
In contrast to aluminum and copper, Japanese strategies to
secure access to iron and coal, both with much lower value to
volume ratios and both consumed in much greater volumes, have
focused on long-term contracts with host countries and placed most
of their efforts on the development of highly efficient large-scale
transport systems, including integrated rail, port, and shipping
systems. Drastic reduction of transport costs to Japan, and then
coordinated efforts between the Ministry of International Trade and
Industry (MITI) and the steel and copper industries to locate
processors with large economies of scale close to ports and to
downstream fabricators, have overcome the competitive disadvantages
of Japan's distance from its raw materials suppliers.
If we look at the timing, the location, and the type of
investment in raw materials, Japanese strategies vary as much
between commodities as they differ from U.S. strategies. In both
iron ore and coal, Japanese firms have supplied only a limited
number of small equity stakes, depending almost exclusively on long
term contracts with North American, European and Australian mining
firms for supplies of these raw materials. These raw materials are
overwhelmingly supplied by industrially advanced nations, including
Australia, Canada, the United States, Brazil, and South Africa. In
copper, by contrast, Japanese firms and consortia have invested
[Page 49]
primarily in mining in industrially less developed nations such as
Papua New Guinea and Zaire, and have preferred to import the least
processed form of the raw material practical in world trade. In
aluminum, meanwhile, Japanese investors have eschewed mines and
have instead chosen to invest further along the processing chain.
They have favored smelters in industrially more developed
countries like Brazil, Venezuela, New Zealand, and Australia.
Imports are now dominated by ingots, the third stage in processing.
Japanese investment in the United States and Canada follows the
same pattern. Japanese firms have invested in United States mines
that will export copper concentrate to Japan, largely from
previously integrated mines whose smelters have been closed due to
increased pollution control regulations. Japan imports processed
aluminum from both countries. What this means effectively is that
Japanese strategies have been to invest in the phase of the
industry with the highest entry barriers--mines in iron ore, coal
and copper, and smelters in aluminum, but to do so with a
relatively low share of equity in association with host country
states and firms.
The key to Japanese access strategies in all of these major
raw materials has been to invert the existing predominant raw
materials supply arrangements of North American and European raw
materials TNCs. In iron ore and coal, this entailed the creation
of worldwide transport networks which dramatically reduced the cost
of moving huge bulks of raw materials to Japan. In copper, where
[Page 50] Journal of World-Systems Research
smelting and refining had historically taken place close to the
mine, Japanese firms and the Japanese state promoted the
development of mines without associated smelters and refineries and
for which the major market was in Japan. In the case of aluminum,
in which aluminum had historically been smelted close to markets,
the Japanese consortia inverted this situation during the last two
decades of high energy costs and moved the smelting industry to
energy-rich regions and exported aluminum ingot to the Japanese
markets.
Publicly and formally, government and industry officials in
Canada and Australia have complained that the Japanese deliberately
enticed them into joint ventures and long term contracts that
created excess capacity in the world market (Anderson 1987).
Shipping analysts have alleged a parallel strategy in world bulk
shipping capacity. Brazilian analysts have claimed similar intent
in the creation of aluminum overcapacity (Machado 1988; Bomsel et
al. 1990). Mainstream U.S. and British resource economists have
generally, however, dismissed these allegations, stating that
Japanese firms and state planners simply overestimated future
demand and had to adjust their contracts accordingly. We believe,
however, that once the very different physical characteristics of
the different raw materials are taken into account, there is an
extraordinary central tendency to increased Japanese advantage in
diversification of supplies and creation of excess capacity at
quite different times in each of these raw materials. Japanese
[Page 51]
steel mills abrogated long term contracts in iron and coal well
before the economic downturn of the early 1980s, and continued to
seek diversified sources even after it was reducing takes from
earlier contracts. The Japanese consortium strongly resisted
Indonesian attempts to reduce aluminum shipments to Japan even when
other Japanese consortia were reducing their commitments in Brazil
and Venezuela. In Australia, Brazil and Canada, as well as in
Indonesia and in the Philippines, access to raw materials has been
integrated in multiple ways with influence on expenditures in
transport, including investment in railways, shipping, and harbors,
as well as in other kinds of primary goods, including timber.
These coordinated ventures, to which the Japanese trading
companies (sogo shosha) seem particularly well adapted, go well
beyond any explanation of exporting in order to pay for imports.
At the very least, they indicate that Japanese firms and the
Japanese state have been able to respond more quickly and
effectively to the new market structures that they themselves were
stimulating than have other core powers. We believe, however, that
the high degree of consonance of Japanese access strategies across
time, space and materials indicates a strategy of control that goes
beyond the particular materials. Unlike British strategies, based
on an alternation between naval dominance, claims to free trade,
and empire-building (see McMichael 1984), and unlike the U.S.
strategies based on foreign direct investment guaranteed by
military and diplomatic force, Japanese raw materials access
[Page 52] Journal of World-Systems Research
strategies have been aimed at undermining established oligopolies
and creating highly competitive, overcapitalized industries with
high levels of technical, financial and transport dependence on
Japan.
Japanese success in these strategies has effectively changed
the world market for multiple basic goods and services. The
destruction of established raw materials oligopolies based in North
America and Western Europe in steel, copper and aluminum has
created a worldwide raw materials extraction, processing and trade
network that has dramatically lowered the cost to firms in raw
materials-poor Japan of obtaining the inputs for the Japanese
steel, shipbuilding, and automobile industries that have been the
leading sectors of the Japanese economy in the post-World War II
era. Without these raw materials access strategies to reduce the
cost of these inputs, economic growth in Japan on the tremendous
scale of the second half of the twentieth century would not have
been possible. These economic and geopolitical raw materials
access strategies freed Japan from the dominance of existing core
powers and core firms, allowing Japan to rise to challenge U.S.
hegemony. Acceptance of the U.S.-dominated Bretton Woods and GATT
trade regimes would not have allowed Japan to develop so rapidly or
completely; only by creating a new Japan-focused raw materials
trade network could Japanese firms and the Japanese government have
the essential low cost raw materials imports to successfully
engineer Japan's challenge to U.S. hegemony.
[Page 53]
Japanese raw materials access strategies have also changed the
distribution of rents from natural resources and from the natural
environment modified by sunk investments. These strategies work
differently than do those identified as hegemonic in earlier
periods, but they are hegemonic nonetheless. Like earlier
hegemonic strategies, they will engender resistance both from the
core and from the periphery, but the forms of resistance will
respond to the peculiarities of Japanese strategies. In the
meantime, the structures which these Japanese access strategies
have helped create in these raw materials markets will continue to
favor, and thus to strengthen, the Japanese position in these
markets. Japanese firms already have considerable control over the
access to raw materials of the industrializing East Asian
economies. This control must facilitate their entry into or
influence on other sectors of these economies. The emergence of
Tokyo as a major financial center can only fortify these
tendencies.
Holland and Britain both established the bases for hegemony in
their search for raw materials, and we believe that the Japanese
followed that pattern. This is not necessarily deliberate; it is
rather the effect of the close ties between the raw materials and
transport requirements of a rising economy and its need to
subordinate peripheral regions in order to satisfy those
requirements. The kinds of control achieved in successful raw
materials access strategies provide critical means to other kinds
[Page 54] Journal of World-Systems Research
of economic and political power. Once the organizational,
informational, technical, and infrastructural forms needed to
subordinate and coordinate numerous, spatially diffuse,
resource-rich peripheries are established, and experience in
manipulating them is accumulated, firms and the state in an
ascending economy will use and fortify them to their own advantage.
Hegemony emerges through the accumulation of such advantages, and
capital will use these advantages as it can. The establishment of
this Japan-focused raw materials network was one of the fundamental
building blocks (materially, economically, organizationally and
technologically) for Japan's rise to challenge U.S. hegemony. We
suspect that the political will that Krasner (1984) and others
discuss becomes important only in the face of resistance, usually
at the peak of hegemony. So far, the Japanese have displayed not
only great political will, but also an alacrity of collaboration
between firms and between firms and the state. There is an ample
literature on Japanese perceptions of resource dependency and
vulnerability. We would guess that Japan will tenaciously pursue
and defend its carefully constructed advantages, but we also have
seen and heard evidence of growing resentment, if not yet
resistance, to the ways the Japanese have restructured markets and
reorganized global environments.
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