Japanese post-war economic miracle
Encyclopedia
The Japanese post-war economic miracle is the name given to the historical
History
History is the discovery, collection, organization, and presentation of information about past events. History can also mean the period of time after writing was invented. Scholars who write about history are called historians...

 phenomenon of Japan's
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

 record period of economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

 following World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

, spurred mainly by Japanese economic policy, in particular through the Ministry of International Trade and Industry. The distinguishing characteristics of the Japanese economy during the "economic miracle" years included: the cooperation of manufacturers, suppliers, distributors, and banks in closely knit groups called keiretsu
Keiretsu
A is a set of companies with interlocking business relationships and shareholdings. It is a type of business group. The keiretsu has maintained dominance over the Japanese economy for the greater half of the twentieth century....

; the powerful enterprise unions and shuntō
Shunto
is a Japanese term, usually translated as "spring [wages] offensive", with the word "wages" sometimes replaced with livelihood, labour or similar term. It refers to the annual wage negotiations between the enterprise unions and the employers...

; good relations with government bureaucrats, and the guarantee of lifetime employment (shūshin koyō) in big corporations and highly unionized blue-collar factories.

American contributions

In the mid- to late-1940s, wartime
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

 expenses threatened economic ruin in Japan. Post-war inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

, unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

 and shortages in all areas seemed overwhelming. Japan’s immediate economic improvement was not achieved on its own. The American government, under the auspices of the Supreme Commander of the Allied Powers
Supreme Commander of the Allied Powers
Supreme Commander of the Allied Powers was the title held by General Douglas MacArthur during the Occupation of Japan following World War II...

 (SCAP), played a crucial role in Japan’s initial economic recovery, although Japanese government measures fostered rapid postwar growth. SCAP officials believed economic development could not only democratize
Democracy
Democracy is generally defined as a form of government in which all adult citizens have an equal say in the decisions that affect their lives. Ideally, this includes equal participation in the proposal, development and passage of legislation into law...

 Japan but also prevent the reemergence of militarism, and forfend communism
Communism
Communism is a social, political and economic ideology that aims at the establishment of a classless, moneyless, revolutionary and stateless socialist society structured upon common ownership of the means of production...

 in Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

. Military hostilities in the Korean peninsula
Korean Peninsula
The Korean Peninsula is a peninsula in East Asia. It extends southwards for about 684 miles from continental Asia into the Pacific Ocean and is surrounded by the Sea of Japan to the south, and the Yellow Sea to the west, the Korea Strait connecting the first two bodies of water.Until the end of...

 further boosted the economy in 1950 because the U.S. government paid the Japanese government large sums for "special procurement." These payments amounted to 27% of Japan’s total export trade. The United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 also insisted that Japan be admitted to GATT
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...

 as a "temporary member" – over British opposition. During the Korean War, SCAP departed and full sovereignty
Sovereignty
Sovereignty is the quality of having supreme, independent authority over a geographic area, such as a territory. It can be found in a power to rule and make law that rests on a political fact for which no purely legal explanation can be provided...

 was returned to the government of Japan.

Governmental contributions

The Japanese financial recovery continued even after SCAP departed and the economic boom propelled by the Korean War
Korean War
The Korean War was a conventional war between South Korea, supported by the United Nations, and North Korea, supported by the People's Republic of China , with military material aid from the Soviet Union...

 abated. Japan’s economy survived the deep recession caused by a loss of the U.S. payments for military procurement and continued to make gains. By the late 1960s, Japan had risen from the ashes of World War II to achieve an astoundingly rapid and complete economic recovery. According to Mikiso Hane, the period leading up to the late 1960s saw "the greatest years of prosperity Japan had seen since the Sun Goddess
Amaterasu
, or is apart of the Japanese myth cycle and also a major deity of the Shinto religion. She is the goddess of the sun, but also of the universe. the name Amaterasu derived from Amateru meaning "shining in heaven." The meaning of her whole name, Amaterasu-ōmikami, is "the great August kami who...

 shut herself up behind a stone door to protest her brother Susano-o
Susanoo
, also known as is the Shinto god of the sea and storms. He is also considered to be ruler of Yomi.-Myths:In Japanese mythology, Susanoo, the powerful storm of Summer, is the brother of Amaterasu, the goddess of the sun, and of Tsukuyomi, the god of the moon. All three were born from Izanagi, when...

's misbehavior." The Japanese government contributed to the post-war Japanese economic miracle by stimulating private sector growth, first by instituting regulations and protectionism that effectively managed economic crises and later by concentrating on trade expansion.

Ministry of International Trade and Industry role

The Ministry of International Trade and Industry
Ministry of International Trade and Industry
The Ministry of International Trade and Industry was one of the most powerful agencies of the Government of Japan. At the height of its influence, it effectively ran much of Japanese industrial policy, funding research and directing investment...

 (MITI) was instrumental in Japan's post-war economic recovery. According to some scholars, no other governmental regulation or organization had more economic impact than MITI. “The particular speed, form, and consequences of Japanese economic growth,” Chalmers Johnson
Chalmers Johnson
Chalmers Ashby Johnson was an American author and professor emeritus of the University of California, San Diego. He served in the Korean War, was a consultant for the CIA from 1967–1973, and chaired the Center for Chinese Studies at the University of California, Berkeley from 1967 to 1972...

 writes, “are not intelligible without reference to the contributions of MITI” (Johnson, vii). Established in 1949, MITI’s role began with the "Policy Concerning Industrial Rationalization" (1950) that coordinated efforts by industries to counteract the effects of SCAP’s deflationary regulations. In this way, MITI formalized cooperation between the Japanese government and private industry. The extent of the policy was such that if MITI wished to “double steel production, the neo-zaibatsu
Zaibatsu
is a Japanese term referring to industrial and financial business conglomerates in the Empire of Japan, whose influence and size allowed for control over significant parts of the Japanese economy from the Meiji period until the end of World War II.-Terminology:...

 already has the capital, the construction assets, the makers of production machinery, and most of the other necessary factors already available in-house”. The Ministry coordinated various industries, including the emerging keiretsu, toward a specific end, usually toward the intersection of national production goals and private economic interests.

MITI also boosted the industrial security by untying the imports of technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...

 from the imports of other goods. MITI's Foreign Capital Law (1950) granted the ministry power to negotiate the price and conditions of technology imports. This element of technological control allowed it to promote industries it deemed promising. The low cost of imported technology allowed for rapid industrial growth. Productivity was greatly improved through new equipment, management, and standardization.

MITI gained the ability to regulate all imports with the abolition of the Economic Stabilization Board and the Foreign Exchange Control Board in August 1952. Although the Economic Stabilization Board was already dominated by MITI, the Yoshida Governments
Shigeru Yoshida
, KCVO was a Japanese diplomat and politician who served as Prime Minister of Japan from 1946 to 1947 and from 1948 to 1954.-Early life:...

 transformed it into the Economic Deliberation Agency, a mere "think tank
Think tank
A think tank is an organization that conducts research and engages in advocacy in areas such as social policy, political strategy, economics, military, and technology issues. Most think tanks are non-profit organizations, which some countries such as the United States and Canada provide with tax...

," in effect giving MITI full control over all Japanese imports. Power over the foreign exchange budget was also given directly to MITI.

MITI's establishment of the Japan Development Bank (1951) also provided the private sector with low-cost capital for long-term growth. The Japan Development Bank introduced access to the Fiscal Investment and Loan Plan (FILP), a massive pooling of individual and national savings. At the time FILP controlled four times the savings of the world's largest commercial bank. With this financial power, FILP was able to maintain an abnormally high number of Japanese construction firms (more than twice the number of construction firms of any other nation with a similar GDP).

Ikeda administration and Keiretsu

In 1954, the economic system MITI had cultivated from 1949 to 1953 came into full effect. Prime Minister Hayato Ikeda
Hayato Ikeda
born in Takehara, Hiroshima, was a Japanese politician and the 58th, 59th and 60th Prime Minister of Japan from July 19, 1960 to November 9, 1964....

, who Johnson calls "the single most important individual architect of the Japanese economic miracle," pursued a policy of heavy industrialization
Heavy industry
Heavy industry does not have a single fixed meaning as compared to light industry. It can mean production of products which are either heavy in weight or in the processes leading to their production. In general, it is a popular term used within the name of many Japanese and Korean firms, meaning...

. This policy led to the emergence of over-loaning (a practice that continues today) in which the Bank of Japan
Bank of Japan
is the central bank of Japan. The Bank is often called for short. It has its headquarters in Chuo, Tokyo.-History:Like most modern Japanese institutions, the Bank of Japan was founded after the Meiji Restoration...

 issues loans to city banks who in turn issue loans to industrial conglomerates
Conglomerate (company)
A conglomerate is a combination of two or more corporations engaged in entirely different businesses that fall under one corporate structure , usually involving a parent company and several subsidiaries. Often, a conglomerate is a multi-industry company...

. Because there was a shortage of capital in Japan at the time, industrial conglomerates borrowed beyond their capacity to repay, often beyond their net worth, causing city banks in turn to overborrow from the Bank of Japan. This gave the national Bank of Japan complete control over dependent local banks.

The system of over-loaning, combined with the government's relaxation of anti-monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...

 laws (a remnant of SCAP control) also led to the reemergence of conglomerate groups called keiretsu
Keiretsu
A is a set of companies with interlocking business relationships and shareholdings. It is a type of business group. The keiretsu has maintained dominance over the Japanese economy for the greater half of the twentieth century....

that mirrored the wartime conglomerates, or zaibatsu
Zaibatsu
is a Japanese term referring to industrial and financial business conglomerates in the Empire of Japan, whose influence and size allowed for control over significant parts of the Japanese economy from the Meiji period until the end of World War II.-Terminology:...

. Keiretsu efficiently allocated resources and became competitive internationally.

At the heart of the keiretsu conglomerates' success lay city banks, which lent generously, formalizing cross-share holdings in diverse industries. The keiretsu spurred both horizontal
Horizontal integration
In microeconomics and strategic management, the term horizontal integration describes a type of ownership and control. It is a strategy used by a business or corporation that seeks to sell a type of product in numerous markets...

 and vertical integration
Vertical integration
In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies in a supply chain are united through a common owner. Usually each member of the supply chain produces a different product or service, and the products combine to...

, locking out foreign companies from Japanese industries. Keiretsu had close relations with MITI and each other through the cross-placement of shares, providing protection from foreign take-overs. For example, 83% of Japan's Development Bank's finances went toward strategic industries: shipbuilding
Shipbuilding
Shipbuilding is the construction of ships and floating vessels. It normally takes place in a specialized facility known as a shipyard. Shipbuilders, also called shipwrights, follow a specialized occupation that traces its roots to before recorded history.Shipbuilding and ship repairs, both...

, electric power
Electric power
Electric power is the rate at which electric energy is transferred by an electric circuit. The SI unit of power is the watt.-Circuits:Electric power, like mechanical power, is represented by the letter P in electrical equations...

, coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...

 and steel
Steel
Steel is an alloy that consists mostly of iron and has a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most common alloying material for iron, but various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten...

 production. Keiretsu proved crucial to protectionist measure that shielded Japan’s sapling economy.

Keiretsu also fostered an attitude shift among Japanese managers that tolerated low profits
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...

 in the short-run because keiretsu were less concerned with increasing stock dividends
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...

 and profits and more concerned about interest payments
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...

. Approximately only two-thirds of the shares of a given company were traded, cushioning keiretsu against market fluctuations and allowing keiretsu managers to plan for the long-term and maximize market shares instead of focusing on short-term profits.

The Ikeda Administration also instituted the Foreign Exchange Allocation Policy, a system of import controls designed to prevent the flooding of Japan’s markets by foreign goods. MITI used the foreign exchange allocation to stimulate the economy by promoting exports, managing investment and monitoring production capacity. In 1953, MITIs revised the Foreign Exchange Allocation Policy to promote domestic industries and increase the incentive for export capacity revising the export-link system. A later revision confirmed based production capacity on foreign exchange allocation to prevent foreign dumping
Dumping
Dumping may refer to a subject......in computing:*Recording the contents of memory after application or operating system failure, or by operator request, in a core dump for use in subsequent problem analysis.*Recording a file or medium as a backup....

.

"Golden Sixties" and shift to export trade

The period of rapid economic growth between 1955 and 1961 paved the way for the "Golden Sixties," the second decade that is generally associated with the Japanese economic miracle. In 1965, Japan's nominal GDP was estimated at just over $91 billion. Fifteen years later, in 1980, the nominal GDP had soared to a record $1.065 trillion.

Under the leadership of Prime Minister Ikeda
Hayato Ikeda
born in Takehara, Hiroshima, was a Japanese politician and the 58th, 59th and 60th Prime Minister of Japan from July 19, 1960 to November 9, 1964....

, former minister of MITI, the Japanese government undertook an ambitious "income-doubling plan." Ikeda lowered interest rates and taxes to private players to motivate spending. In addition, due to the financial flexibility afforded by the FILP, Ikeda’s government rapidly expanded government investment in Japan’s infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...

: building highway
Highway
A highway is any public road. In American English, the term is common and almost always designates major roads. In British English, the term designates any road open to the public. Any interconnected set of highways can be variously referred to as a "highway system", a "highway network", or a...

s, high-speed railway
Rail transport
Rail transport is a means of conveyance of passengers and goods by way of wheeled vehicles running on rail tracks. In contrast to road transport, where vehicles merely run on a prepared surface, rail vehicles are also directionally guided by the tracks they run on...

s, subway
Rapid transit
A rapid transit, underground, subway, elevated railway, metro or metropolitan railway system is an electric passenger railway in an urban area with a high capacity and frequency, and grade separation from other traffic. Rapid transit systems are typically located either in underground tunnels or on...

s, airport
Airport
An airport is a location where aircraft such as fixed-wing aircraft, helicopters, and blimps take off and land. Aircraft may be stored or maintained at an airport...

s, port
Port
A port is a location on a coast or shore containing one or more harbors where ships can dock and transfer people or cargo to or from land....

 facilities, and dam
Dam
A dam is a barrier that impounds water or underground streams. Dams generally serve the primary purpose of retaining water, while other structures such as floodgates or levees are used to manage or prevent water flow into specific land regions. Hydropower and pumped-storage hydroelectricity are...

s. Ikeda's government also expanded government investment in the communications sector of the Japanese economy previously neglected. Each of these acts continued the Japanese trend towards managed economy that epitomizes the mixed economic model
Mixed economy
Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...

.

Besides Ikeda's adherence to government intervention and regulation of the economy his government pushed trade liberalization
Free trade
Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...

. By April 1960, trade imports had been 41 percent liberalized (compared to 22 percent in 1956). Ikeda planned to liberalize trade to 80 percent within three years. His plans however met severe opposition from both industries who had thrived on over-loaning and the nationalist public who feared foreign enterprise takeovers. The Japanese press likened liberalization to "the second coming of the black ships
Black Ships
The Black Ships was the name given to Western vessels arriving in Japan in the 16th and 19th centuries.In 1543 Portuguese initiated the first contacts, establishing a trade route linking Goa to Nagasaki...

," "the defenselessness of the Japanese islands in the face of attack from huge foreign capitalist powers," and "the readying of the Japanese economy for a bloodstained battle between national capital and foreign capital." Ikeda's income-doubling plan was largely a response to this growing opposition and widespread panic over liberalization, adopted to quell public protests. Ikeda's motivations were purely pragmatic and foreign policy based however. He moved toward liberalization of trade only after securing a protected market through internal regulations that favored Japanese products and firms.

Ikeda also set up numerous allied foreign aid distribution agencies to demonstrate Japan’s willingness to participate in the international order and to promote exports. The creation of these agencies not only acted as a small concession to international organizations, but also dissipated some public fears about liberalization of trade. Ikeda furthered Japan’s global economic integration by joining the GATT
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...

 in 1963, the IMF
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

, and the OECD
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...

 in 1964. By the time Ikeda left office, the GNP
Measures of national income and output
A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product , gross national product , and net national income . All are specially concerned with counting the total amount of goods and...

 was growing at a phenomenal rate of 13.9 percent because of a largely protected domestic economy.

In 1962, Kaname Akamatsu published his famous article introducing the Flying Geese Paradigm
Flying Geese Paradigm
The Flying Geese Paradigm is a view of Japanese scholars upon the technological development in Southeast Asia viewing Japan as a leading power. It was developed in the 1930s, but gained wider popularity in the 1960s after its author Kaname Akamatsu published his ideas in the Journal of Developing...

. It postulated that Asian nations will catch up with the West as a part of a regional hierarchy where the production of commoditized goods would continuously move from the more advanced countries to the less advanced ones. The paradigm was named this way due to Akamatsu's envisioning this pattern as geese flying in unison with Japan being an obvious leader.

Conclusion

The period of growth came to an end with the bursting of the Japanese asset price bubble
Japanese asset price bubble
The was an economic bubble in Japan from 1986 to 1991, in which real estate and stock prices were greatly inflated. The bubble's collapse lasted for more than a decade with stock prices initially bottoming in 2003, although they would descend even further amidst the global crisis in 2008. The...

 in 1991. This was followed by the "Lost Decade
Lost Decade (Japan)
The is the time after the Japanese asset price bubble's collapse within the Japanese economy, which occurred gradually rather than catastrophically...

" (1991–2000).

See also

  • Developmental state
    Developmental state
    Developmental state, or hard state, is a term used by international political economy scholars to refer to the phenomenon of state-led macroeconomic planning in East Asia in the late twentieth century...

  • Economic history of Japan
    Economic history of Japan
    The economic history of Japan is one of the most studied for its spectacular growth after the Meiji Restoration when it became the first non-European Power and after the Second World War when the island nation rose to become the world's second largest economy....

  • Economy of Japan
    Economy of Japan
    The economy of Japan, a free market economy, is the third largest in the world after the United States and the People's Republic of China, and ahead of Germany at 4th...

  • Japanese asset price bubble
    Japanese asset price bubble
    The was an economic bubble in Japan from 1986 to 1991, in which real estate and stock prices were greatly inflated. The bubble's collapse lasted for more than a decade with stock prices initially bottoming in 2003, although they would descend even further amidst the global crisis in 2008. The...

  • Lost Decade (Japan)
    Lost Decade (Japan)
    The is the time after the Japanese asset price bubble's collapse within the Japanese economy, which occurred gradually rather than catastrophically...

  • Post-war economic boom
  • Trente Glorieuses
    Trente Glorieuses
    Les Trente Glorieuses refers to the thirty years from 1945-1975 following the end of the Second World War in France. The name was first used by the French demographer Jean Fourastié...

  • Wirtschaftswunder
    Wirtschaftswunder
    The term describes the rapid reconstruction and development of the economies of West Germany and Austria after World War II . The expression was used by The Times in 1950...


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