"Business Japan"@February 1978

Energy vs. Pensions Developing Into a Problem

Taichi Sakaiya vs. Hajime Fujiwara

JAPAN since the oil shock in 1973 has ceased to grow at the high pitch that was previously the feature of its economy and stands now in a state of pitiful dejection. The panic predicted to hit the world economy several years hence in the early half of '80s, is now expected to be much more punishing or unprecedented in scale, landing a fatal blow on the Japanese economy. How should Japan face the crisis, or are there any ways to survive the disaster? Two Japanese experts on petroleum and natural resources have exchanged heated views on the forthcoming crisis to draw a clearer picture of the Japanese economy in the '80 - Shigeo Kashima, Editor


Taichi Sakaiya: Novelist, age 43, real name Kotaro Ikeguchi. After graduating from Tokyo University in 1960, he became an official of the Ministry of International Trade and Industry (MITI). He won a reputation as part of the "new elite" by submitting his plan for holding the Osaka World Exposition (EXPO '70) three years later at the age of 28 and also prepared the groundwork for the Okinawa OceanYxposition. He wrote a story titled "Yudan" (literally Oil-Cut) in 1975 which created a sensation and established a unique position in the literary world as a "bureaucrat-novelist." His recent literary works include "Generation of the Masses," and "Hadankai."

Hajime Fujiwara: A petroleum geologist aged 39 who lives in Canada. Upon graduation from Saitama University in 1963. he went to France to major in structural geology and petroleum geology. Doctor of Science. He served as consultant for probing for oil and natural resources in Africa, the Middle East and Europe. In 1971 he predicted that an oil crisis would hit Japan in two years which turned out to be correct. He now works for Petrofina Canada Inc. and is back in Japan for the first time in five years. His books include "The Oil Crisis and Japan's Fate" published by the Simul Publication Co. and "Japan Maru Will Sink" published by the Jiji Press.

Shigeo Kashima: Editor-in-chief of Business JAPAN, an English monthly published by the Nippon Kogyo Shim-bun. Served as Sankei Shimbun's Beirut correspondent for two years and seven months between December 1973 immediately after the 4th Arab-Israeli war and August 1976. He was among the last Japanese to leave Lebanon when civil war broke out in that country. Age 47.

Will ROK Hold Sway Over Japanese Politics, Economy?

K. In the first-half of our talks Mr. Fujiwara predicted that as the result of a catastrophe in the '80s, social uneasiness will provide a ground for a coup d'etat by the Self-Defense Forces (SDF) who will suspend the Constitution and establish a highly totalitarian political system. Mr. Sakaiya on the other hand laughed away the possibility of this as mere "fantastic" tales. Shall we elaborate further on that topic?

F. A coup d'etat is one of the extreme cases I imagined. Judged from how matters stand at present, the outcome - a fascist revolution - should take place in a more moderate form, the key factor triggering such an event being the Japan-ROK relationship. The ROK in the past decade has kept its domestic economy in a free, open state to allow inflow of foreign capital to the fullest extent, and that country's international sense is be fare sharper than that of the Japanese. I am sure that anyone meeting and exchanging views with top-notch Korean politicians or businessmen would share the same thought. I see the possibility of all Japanese capital in Korea being confiscated in that event, providing grounds for the enactment of what you may term "hijack." That is, the Korean side, taking advantage of the Japanese capital it overtook and employing these as "hostage" may attempt to launch an offensive to eventually rule Japanese politics and the country's economy. This is not entirely impossible since world politics rotate on the balance of power theory as footed in utilitarianism.

K. So you foresee the possibility of a "capital hijacking" by Korea?

F. International politics are bound to be merciless and cruel. A country with a strong economy and rich in human resources, and which seems to safely govern other small countries, often gives in to a small, dictatorial country whose financial size couldn't be compared. World history abounds in such cases.

K. And you think this will happen to Japan?

S. We have seen this happen in modern Japanese history, in the Russo-Japanese and Sino-Japanese wars. Japan, a tiny island empire in those days, managed to beat the world giants by uniting all its strength and taking advantage of its quick diplomatic maneuverability, though at the time these giants were internally corrupt and their people's morale was at a low ebb. Japan's current relationship with South Korea is comparable to that situation, the difference being that Japan assumes the position of then Russia and China.

K. How is such a Japan-ROK relationship linked to the strong possibility that a powerful dictatorial leadership will emerge in Japan?

F. Take a look, for example, at the leading-figures who are proponents of the Japan-ROK axis. With Nobusuke Kishi at the head, they are all pre-World War II bureaucrats of the so-called "reformist" camp, the prime movers of the puppet Manchurian empire. Korea today is a miniature of Manchuria, serving as Japan's Shangri-La on the Asian continent. The Japanese idea that it had ruled Manchuria was a hornet's nest and it fell victim to its dream, as proved by history. To put it the other way, it wasn't the dog that wagged his tail but the tail that wagged the dog, thus leading to a total collapse of the Japanese empire. The same thing is happening today with Korea playing the part of the dog's tail, and 1 regard this a very dangerous situation.

K. And one of the factors leading to such an event, you say, is the oil crisis expected in the '80s?

F. An ardent wish of most Japanese today is to own a house. Personal debts hover at a high level as the result and practically all Japanese are groaning under the heavy burden of debts. In addition, the nation is faced with a severe unemployment situation making job-hunting difficult for college graduates and older workers being pressed to leave even before their retirement ages. It may happen that the life-employment system inherent to the Japanese industry can no longer be maintained and a state of panic bank drawings will result. Unlike the Sanyo Steel's bankruptcy case when the government extended help, no remedial measure may be expectable under such circumstances.
If the state of unemployment worsens to such a degree, it is possible that some oreanizatiolns called by such names as the "Society of Imperial Frontier Guards" or "Japan Society of Patriots" will emerge and spread their strength by taking advantage of the miserable state of the unemployed and offering preferential treatment to those job-seekers willing to join the organizations. The whole nation as a result would follow the path for a rightist revolution. I consider that a large number of political figures bear that consequence in mind.

S. Mr. Fujiwara, I still think that your fabrication is far too fantastic (laughter).

Dropping N-Bombs Across the Pacific

F. But that's the basic feeling the U.S. holds about Japan. Americans always hold such feelings of uncertainty about Japan. A typical example is the oil issue, for instance the Alaskan oil. Discovered in the Blue Bay on the northern tip of Alaska, this oil reaches the southern ports via the trans-Alaskan pipe line. If that oil is exported to Japan and swapped with the Saudi Arabian oil for Japan, the swap should add much to slashing the deficit of U.S. balance of international payments and - since a transport-saving of $ 1-1.5 is expectable - the swap should prove beneficial for both the U.S. and Japan. Yet, this plan met opposition not only in the U.S. Congress but also by President Jimmy Carter himself.
The reason for the opposition is that they fear a petroleum import firm may be formed in Japan as a tunnel institute to direct all profits thus earned to the Japan-Korea axis. In other words, they fear that behind-the-scenes maneuverability similar to the current payoff scandal of the Park regime which intended to buy U.S. politicians might recur with the Japan-ROK axis.

K. Is that the same background that hampered a smooth negotiation on the nuclear fuel issue between Japan and the United States?

F. Exactly. Ours is an era in which any nation if it wished to produce hydrogen bombs could do so as long as the material plutonium is secured. President Carter is opposed to allowing free disposition of plutonium by Japan because of the risk that the plutonium might eventually reach the hands of the racist regime in South Africa or the unpredictable Idi Amin of Uganda, but actually it isn't only the two countries he has in mind when he says this. It includes also Japan and the ROK. Such a fear isn't unfounded when judgments are made as rooted in international politics. In fact, there are some Cabinet ministers in this country who look forward to arming the nation with nuclear weapons, and one of them in an "off-record" interview with local newspapers remarked that by using the rockets being developed in Kagoshima, Japan could even drop H-bombs on New York. The United States, of course, is 100% aware of such remarks made by a responsible figure.

K. Mr. Sakaiya, what social and political phenomena do you think the nation will undergo in the catastrophic years of the '80s?

S. I presume the most critical phenomenon will take the form of alienation in intelligence and sensitivity. The gravest issue facing the nation is that - be it either the energy or the population structure issue - it is becoming extremely difficult to devise and apply the measures that fit the situation. My view in this regard runs counter to the opinion of Mr. Fujiwara, that the country's administrative power is poor.

F. Poor administrative power and poor political leadership are two different things. The country's administrative setup is centered on able bureaucrats who keep a tight control on the national economy, and so there is no argument on the government's efficiency in administration. What the government lacks is political leadership on a global scale, which results in the country's policy appearing precarious to the eyes of the world.

S. It's not bureaucrats or topics at that level I wanted to take up here. I feel that Mr. Fujiwara is going too far as a way of making his talk interesting.

Buy Up U.S. Oil Majors With Excessive Reserves

K. Let's skip that matter and move to the next subject. There should be steps the nation may take to minimize the impact of the oil crisis in the '80s. In this connection, the gravest issues facing Japan today are the huge foreign currency reserves and the surging value of yen. How should these issues be handled with the oil crisis of the 80s in mind?

S. As previously pointed out, there are two types of oil crisis, one being the "oil-cut" where imports of oil drop suddenly drastically at some point and the other being the depletion of oil resources. In either case, its gravity cannot be met by simply keeping the nation's foreign currency reserves at a high level. Japan should better slash its huge amount of reserves if so requested to maintain harmony in international relations.

F. We needn't strive to "slash" the currency reserves against our will but strive instead to seek purposes for which the currencies could be best used. For instance, like buying up a firm of the U.S. oil majors. It is typical of our financial bureaucrats that whenever Japan is criticized for the huge reserves it has piled up, they resort to the short-sighted, direct approach of "increased imports." If we're to spend the foreign reserves for something that adds to the nation's efforts to avert the crisis, the first step to take is the abolition of the present financial system where all foreign currencies fall in the grip of the Bank of Japan (BOJ). The BOJ is a typical example of stiff-minded bureaucrats governing the economy of a country. There is no free enterprise system in this country, and all economic activities are guided and controlled by either the BOJ, the Finance Ministry or the Ministry of International Trade and Industry.

K. Mr. Sakaiya, are there plans which you think should be effective in cutting back the huge reserves?

S. I agree with Mr. Fujiwara that the best is to use it for purposes that promote the nation's security. The world today regards Japan as a nation that pays not a penny in insurance duty to ensure safety for its future. One of the chief reasons for trade friction between Japan and the European countries or the United States lies therein - that since Japan worries not at all about its security, the goods they manufacture are that much cheaper. If these countries wished to match the Japanese prices, they. would inevitably be compelled to abandon their security plans. Japan for that reason is termed a "danger-exporting" nation by some of the countries.

F. What is "security" according to your definition, Mr. Sakaiya?

S. Don't jump to the conclusion that by saying so I mean national defense. The share of defense expenditures to the whole security expenses, with the exception of certain nations, is about 30%. The security I mean here is in the broad sense, that is, national security or economic national security.

F. I understand.

S. Your plan of buying up a firm of the U.S. oil majors is one way to attain the purpose - though its realization in practice should be extremely difficult. The next conceivable step is the project for oil storage which, if we wished to store oil for the equivalent of 30 days, for example, should require an expense of about $2 billion. Japan isn't to be allowed to. follow the plan, however. The chief reason standing in the way is the opposition by local residents to the construction of oil tanks. The same opposition is also seen in the construction of nuclear power plants. This type of opposition constitutes a serious obstacle to the nation's energy program. It is common in Japan that even when 90% of the residents agree to a construction plan, the plan goes down the drain when even 5% of the people says no.

F. I find in your words a typical MITI concept - that when it comes to oil storage, the plan of building storage tanks to save oil will suffice. The most effective way for maintaining an oil supply is to exploit oil resources in the peripheral areas of the Japanese mainland and secure at least 20-30% of the oil within its reach.

S. Your idea is even more naive. MITI in fact has already taken up and is currently pushing a plan to exploit oil resources in the seas surrounding Japan as a top priority policy. I doubt, however, if oil exists in such a huge volume in the neighboring seas.

F. I say there are good chances for that.

S. Where is that?

F. If the target is a mere 20%. I say we can get it from anywhere in the seas around Japan.

S. I doubt if that's true. Twenty per cent of Japan's total demand of oil spells 60 million barrels per year which is even larger than the whole amount of crude produced in China per year. It isn't easy to pump that much oil.

Step Up Oil Drilling in Seas Near Japan

F. Oil drilling is a sort of after-wisdom play that when one finds a potential oil field all the rest rush to the scene. For example, the Japanese military prior to World War II couldn't imagine that a vast oil field lay beneath the ground of Manchuria which was in their grip, and aimed instead at the Indonesian oil fields of the Netherlands. It was the common belief of the Japanese geologists those days that since the Chinese continent is a mass of terrestrial deposits, no oil field could be expected under the soil. of Manchuria. The same may be said of the continental shelf near Japan, only the Japanese oil engineers are not eligible to point to the right spots. The U.S. oil majors and other European oil drillers seem confident of knowing the right spots although, because of the isolationist policy of the Japanese government and because they are foreign capital companies, they are being compelled to refrain from making fullfledged oil drillings.

S. You seem to hold a wrong idea of the real facts. Many foreign oil firms have applied for test drillings in the continental shelf of Japan and, in fact. the government has issued permission to those firms willing to carry out test drillings as long as the areas involved carry no risk for international troubles.

K. Let's put aside the isolationist arguments. But what do you think of the possibility of hitting promising oil fields in the Sea of Japan if the Japanese government pushed a fullfledged drilling project?

S. It's hard to figure what fullfledged efforts can mean. but it's true that the Japan Petroleum Development Corporation (JPDC) as one of its priority policies is pushing oil exploitation in the Sea of Japan. There should be oil in that area but so far, though numerous drillings have been made by Shell and Exxon, no reports have been made of hitting an oil field that could be operated on a commercial basis. As the matters now stand, it is likely that heated controversies would entail if the Japanese government planned to appropriate a huge portion of its revenue for such oil drilling projects.

F. There is no need to finance the projects with taxes collected from the people. Oil drillings throughout the world are all made by non-governmental oil capital companies on a commercial basis, and these are the foreign capital companies who consider oil drilling in the Sea of Japan promising.

S. Your remarks run counter to the precise data compiled by the Japanese government.

K. I hear that most of the applications submitted for test drillings come from foreign capital companies. If oil is actually there, I think they are in the position to drill for oil any moment they wished. Why don't they?

S. They are. some bringing with them sea floor survey ships. With the exception of areas bound to invite international friction such as the Asian continental shelf for which a treaty is pending with China, a number of Japanese and foreign capital companies are conducting test drillings in the sea near Japan. One grave issue with these operations, however, is the strong protests by local fishermen against the sea floor survey. This marks a striking contrast with the case of drilling in the North Sea oil fields off England.

F. You don't give up just because the first three or four drillings proved abortive. It often happens that you drill 50 to 100 spots before you hit oil. So, even if they stopped drilling after the first ten or so spots it cannot mean they have given up hope. They are simply marking time, until the conditions have improved.

S. By which you mean improvement in cost considerations?

F. That is one, but more important in the case of Japan, political conditions.

Japanese Oil Fields Cannot Be Profitable

s. I cannot understand what you mean by political conditions. Judged from the present conditions I know, we are in no state to expect an oil field that can be drilled on a commercial basis and in a size that meets the country's demand by a large percentage.

K. Is it why the oil majors are practicing prudence, that they cannot be. sure the oil drilling will be profitable?

S. Yes. So it is a misunderstanding to consider that the Japanese government is hampering efforts to exploit oil fields in the areas adjacent areas to Japan.

F. I am not denying that even when the oil majors wished to drill oil in waters near Japan that it will cost a lot more than drilling in African waters. There is nothing, in Japan that the majors may use fur oil exploitation, beginning with human resources All supplies must be prepared beforehand by the majors. Japan, as far as oil drilling is concerned, is at the level of a developing nation.

S. That is partly true. Aware of such a defect, the JPDC is making strenuous efforts to train the required oil engineers. Despite such efforts, Japan lags far behind the United States and advanced European countries in oil drilling technology since its history is very short and its experience quite limited. These and other shortcomings make oil drilling on a commercial basis extremely difficult in seas surrounding Japan.

F. The majors, if they discover new, promising oil fields in other areas, needn't stick to areas around Japan for oil. Even when they think one is promising, they may stay away from it for their own reasons. But those are the majors. It's another story if Japan wished to drill oil from its own backyard.

S. It comes then a matter of economic choice, meaning what percentage of the tight national budget may be appropriated for that purpose.

F. We're dealing with the burning issue of securing oil for the country's future. I feel that both the Japanese government and the private industrial sector lack the recognition of its urgency, that they must go ahead with the oil drilling projects even at the risk of making no profits.

S. For the government it's still a matter of choice. For instance, when a choice must be made to what policies priority should be directed, old-age pensions, rice price, housing, or energy issues, the overwhelming voice heard including the journalists', are those for pensions or housing. The problem lies there. For us in charge of energy, it is discouraging that people, for example, those attending a housewives' conference, respond with remarks like this when we explain that the government in order to prepare for the oil crisis has invested this amount of money or that the government for the development of a new source of energy has invested \4.8 billion to the Sunshine Project - "What a waste. Why don't you spend it for the old-aged. What happened to your affection for your country?" and so on. People's understanding of energy issues in Japan, I say, is desperately low.

F. What spoiled the people as such is the election-oriented, lax financial policies of the Japanese government in the past. They raise the price of rice to appease the farmers whenever they grumbled, they came to the help of industry with subsidies whenever there were calls for help in the days of recession. Easy-going has become a habit of the Japanese administrators so that even when the country is in the verge of a total collapse, there is no leadership response. It is time we correct the orbit. The problem of oil storage for the nation's security in the future and the old-aged pensions are entirely different things.

S. You are right.

F. What's more, if oil storage is for the sake of the nation's future security, the policy against which top priority should be directed - ahead of storage - is the efforts for exploiting oil resources. That is the sphere in which political leadership should be displayed. Unfortunately, such leadership is non-existent in this country.

Use the Whole SDF for Oil Exploitation

S. You may not realize it but the remarks you just made are quite "bureaucratic." (laughter) Nowadays government officials cannot be that bureaucratic. We are supposed to respond to what people are expecting and there are certain limitations in the themes we offer. Of course, we shouldn't spare efforts to inform people of the serious outlook of the nation's energy, after which we should leave the matter of choice, energy or old-age pensions for example, to their discretion.

F. All your talk is confined to welfare but the same can be said also of national defense expenditures, subsidies to the economic circles, or the fiscal investment and loans. It's not an issue of oil vs. welfare. So why don't we use the whole Self-Defense Forces for oil exploitation? We won't need the jet fighters or rockets, of course, but we can make a good use of the planes, trucks, tanks and especially the youthful human resources. The setup of military troops and oil drilling teams look very close so I think the Self-Defense Forces will make an ideal exploitation team with a few touches. Besides, military troops are the leading energy waste so we can make them pay for that.

K. Why don't we use about three divisions for oil drilling?

F. Such fundamental debates are what I expect to hear from the political circles. Debates on the choice of welfare or oil is out of question.

S. I'm sure you know that Japan's military expenditures are a mere 0.9% of the gross national product (GNP) - the world's smallest percentage. Energy consumed by the SDF is only 0.2% of the nation's total consumption. Mr. Fujiwara has in mind the huge military expenditures of the United States which don't fit the case of Japan. I wish that all nations of the world would cut down their military strength to the Japanese level for better prospects for world energy.

K. Japan is planning to raise the nation's oil storage to the equivalent of 90 days by the spring of 1980. Do you think that this target is attainable?

S. I think it is possible.

K. Supposing it is possible, is that amount satisfactory to tide over the crisis in 1982-1983?

S. The desired amount should be 120 days worth.

F. Instead of boosting the oil storage by another 30 days, won't the prospects become brighter if we appropriate the national defense or some other budgets for the exploitation of oil?

S. There is a high possibility that rich oil fields may be exploited in waters close to Japan, but we cannot depend on that possibility to abandon our plans for oil storage. Indeed, it is another story if there is authentic date unknown to the Japanese government or Japanese oil firms that clearly indicates the existence of a hug" oil field. It is impossible to believe that such data exists. When a man who claims he had surveyed all waters adjacent to Japan showed up with an entirely new resources map, any crookedness of his map can be easily checked by comparing his map with the government's resources map.

F. I have been in touch with oil drilling projects all over the world. The areas I am in charge of are those over 60 degrees north latitude. From my experience, I say it's not that no oil reserves exist near the waters close to Japan but that Japan lacks the software to pump the oil.

S. Lack of information indeed. I couldn't imagine that lack of information about the government's policies, ideas or controversies could be so conspicuous even in such a person as Mr. Fujiwara. It's partly our responsibility for sure.

F. I consider that MITI's plan to boost the nation's oil storage to 120 days worth is footed more on its idea to relieve the recession-hit steel making and shipbuilding industries through construction of tanks and tankers. At least such was the manner in which the government has steered their policies so far and 1 cannot believe that this case is an exception.

S. That is your own thought. It doesn't make sense.

F. Making sense or not, it is an undeniable fact that MITI has walked hand in hand with the industry up to now and I don't think that the relationship between MITI and the industry could fade overnight.

S. The problem of oil storage has been tackled a long time before recession hit the steelmaking and shipbuilding industries. We took up the issue as early as 1970 when the industry was short of iron supplies and ship exports were booming.

F. I say that the Japanese government, despite the gloomy outlook on energy, has done practically nothing to prepare for the future. The country from now on if it moved ahead with no preparations will die a broken man on the roadside. The country's politicians, bureaucrats supporting the politicians and businessmen, and the people themselves, must hold a clear picture of what fate the nation will face just around the corner.

S. At the same time, people should stop placing political responsibilities on the shoulders of a few politicians, bureaucrats or businessmen. Government policies are a matter for all people and it is wrong to consider that the oil storage project, for example, has been invented to protect only a few industries of the country.

K. Thanks very much for the informative conversation.


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