Japanese economic miracle
The Japanese economic miracle refers to a period of economic growth in post–World War II Japan. It generally refers to the period from 1955, around which time the per capita gross national income of the country recovered to pre-war levels, and to the onset of the 1973 oil crisis.
Before the war, Japan had achieved industrialisation from the second half of the 19th century, but light industry and agriculture remained the backbone of the economy, and poverty was widespread among the working class and tenant farmers. Heavy industry was primarily focused on the military, such as aviation, shipbuilding, and military vehicles, rather than the production of civilian goods. The Second World War resulted in the loss of all its colonial possessions, and both the mainland's industrial capabilities and population were heavily damaged. After the war, the government was deep in debt, while the people suffered privation of vital supplies, which inevitably caused hyperinflation.
Under the Allied Occupation Forces, Japan's economy underwent significant structural changes, which initially included the dissolution of all major zaibatsu and the weakening of heavy industries and scientific research, so as to deprive the country of the ability to wage war ever again. The government and the Bank of Japan had to deal with hyperinflation while rebuilding the economy under these restrictions. However, along with West Germany, Japan later benefited from a fundamental shift in US policy, which now tried to help rebuild these former enemies in a democratized form, rather than weakening them, in an effort to prevent the spread of communism in their respective regions.
Japan's economy gradually recovered to regain pre-war standard of living towards the mid-1950s, around which time the 'economic miracle' started. During this period, Japan's economic growth was driven by its heavy industries and the expansion of the middle class, which provided both a large domestic consumer market and bank savings. These savings were, in turn, lent to companies to invest in fixed capital. The Japanese government's interventionism also played a role, most notably through the Income Doubling Plan, conceived by Osamu Shimomura and implemented by prime minister Hayato Ikeda. Japan also benefited from the Bretton Woods system, which pegged major currencies, including the yen, to the United States dollar. During the economic boom, Japan rapidly became the world's third-largest economy, after the United States and the Soviet Union. Japan joined the OECD as an early member in the 1960s, and became a founding member of the G7. By the 1970s, Japan was no longer expanding as quickly as it had in the previous decades despite per-worker productivity remaining high.
History
Recovery stage (1946–1954)
The Japanese economy was in ruins following the end of World War II. Moreover, by 1946, Japan was on the verge of a nationwide famine that was averted only by American shipments of food. The virtual destruction of the Japanese standard of living, combined with the military threat presented by the Soviet Union, compelled the United States to support a wide-reaching economic recovery. Every country experienced some industrial growth in the post-war period, but those countries that achieved a heavy drop in industrial output due to war damage such as Japan, West Germany and Italy, achieved the most rapid recovery. In the case of Japan, industrial production decreased in 1946 to 27.6% of the pre-war level, but recovered in 1951 and reached 350% in 1960. By the end of the American occupation of Japan in 1952, the United States had successfully reintegrated Japan into the global economy and rebuilt the economic infrastructure that would later form the launching pad for the Japanese economic miracle.Arguably, one reason for Japan's quick recovery from war trauma was the economic reform by the government. The government body principally concerned with industrial policy in Japan was the Ministry of International Trade and Industry. One of the major economic reforms was to adopt the "Inclined Production Mode". The "Inclined Production Mode" refers to the inclined production that primarily focuses on the production of raw materials including steel and coal. Textile production occupied more than 23.9% of the total industrial production before the economic miracle. Moreover, to further stimulate growth, the Japanese government encouraged women to enter the labor market. The legislation on recruitment contains three components: the restriction placed on regional recruitment and relocation of workers, the banning of the direct recruitment of new school leavers, and the direct recruitment of non-school leavers under explicitly detailed regulations issued by the Ministry of Labour.
Another reason that accounts for Japan's recovery from WWII in the early 1950s was the outbreak of the Korean War in 1950. The war was fought in a territory that had been a Japanese colony until 1945, which was later divided between the Soviet-backed North and the US-backed South. As a result, the US had to procure military supplies from Japan to support the war effort in Korea. The country's heavy industries, which were on the verge of bankruptcy, were saved by orders to repair thousands of damaged planes and military vehicles, while car companies such as Toyota flourished with orders for numerous lorries and other military vehicles.
High increasing stage (1954–1972)
After regaining its pre-war standard of living in the mid-1950s, Japan's economy soared until the early 1970s. Between 1957 and 1973, the country saw an annualised growth rate of around 10% in terms of GNP. In 1964, Japan joined the OECD, which had been established three years earlier and has been widely regarded as one of the primary indicators of developed nation status. At the time, Japan was the only member from the Pacific Asia and Oceania region until Australia joined in 1971, followed by New Zealand in 1973 and South Korea in 1996. That same year, Japan hosted the Tokyo Olympics, and large infrastructure projects such as the Shinkansen and expressways were completed to accommodate the increased demand for transport brought about by the event.The Japanese Economic Yearbooks from 1967 to 1971 witnessed a significant increase. In 1967, the yearbook said: the Japanese economy in 1966 thus made an advance more rapidly than previously expected. In 1968, the yearbook said that the Japanese economy continued to make a sound growth after it had a bottom in the autumn of 1965. The words "increase", "growth" and "upswing" filled the summaries of the yearbooks from 1967 to 1971. The reasons for Japan to complete industrialization are also complicated, and the major characteristic of this time is the influence of government policies of the Hayato Ikeda administration, vast consumption, and vast export.
Influence of government policies: Ikeda administration and ''keiretsu''
In 1954, the economic system MITI had cultivated from 1949 to 1953 came into full effect. Prime Minister Hayato Ikeda, whom Chalmers Johnson calls "the single most important individual architect of the Japanese economic miracle," pursued a policy of heavy industrialization. This policy led to the emergence of 'over-loaning' in which the Bank of Japan issues loans to city banks who in turn issue loans to industrial conglomerates. Since 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 over-borrow 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 laws also led to the re-emergence of conglomerate groups called keiretsu that mirrored the wartime conglomerates, or zaibatsu. Led by the economic improvements of Sony businessmen Masaru Ibuka and Akio Morita, the keiretsu efficiently allocated resources and became competitive internationally.File:Kisarazu-port.JPG|thumb|Japanese coal- and metal-related industry experienced an annual growth rate of 25% in the 1960s, with the steel plant of Nippon Steel Corporation in Chiba Prefecture being a notable one.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 and vertical integration, 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, electric power, coal and steel production. Keiretsu proved crucial to protectionist measures that shielded Japan's sapling economy.
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 exports by revising the export-link system. A later revision-based production capacity on foreign exchange allocation to prevent foreign dumping.