The Japanese Economic Miracle

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Japan does not harbor many natural resources, was late to industrialize, is a rather isolated country, and has limited land available for settlement; however, it also has one of the world’s most powerful economies since the Japanese Economic Miracle (O’Bryan 2009, 18). The Japanese Economic Miracle was a period of rapid economic growth in Japan between the post World War II era continuing on until the end of the Cold War (O’Bryan 2009, 19). Following their defeat in World War II, they were granted the grand opportunity to rebuild after the war devastated their economy and infrastructure which led to them losing much of their productive capacity through the destruction of factories and the loss of over 3 million citizens (O’Bryan 2009, 22). They successfully took advantage of this opportunity and rose through the ranks to establish themselves as a great economic power. Between 1950 and 1975, incomes soared and Japanese goods became some of the best in the market at the time (O’Bryan 2009, 47). However, they did not do this alone. The United States occupied Japan in 1945 and quickly implemented a series of reform policies which helped its economy grow and bolstered it from within. These reforms included land reforms, labor democratization and the disintegration of the zaibatsu or Japan’s large family-controlled banking and industrial groups (Beckley 2018, 2). The reforms enacted by the United States were of utmost importance to democratizing and modernizing the nation but were not solely responsible for their soaring economic development. Japan’s market-following government strategies, self-developed policies, and citizens strong work ethics were necessary to foster such high levels of growth within such a small period of time.

In this paper, I will review the two different aforementioned discussions of Japan’s economic miracle growth that explains its rapid and successful economic expansion and answer the question of how well each of these viewpoints explains the economic miracle. I will first introduce the background and history of the economic miracle supported by statistics. I will then present the first explanation: that of Japan’s dependence on its close alliance with the United State’s. I will follow this by introducing a competing explanation: Japan’s self-implemented policies and motivated citizens. Ultimately, I argue that while America’s occupation of Japan did lay the groundwork for them to grow, their economic miracle would not have been possible without the results-driven attitude of the Japanese and the legislation and actions taken by the Japanese government independent of the United States.

In order to fully understand the rapid growth of Japan’s economy during the postwar period, one must first delve into the country’s economic and historical track record dating from the 1800s to the early 1900s. Japan in the 1800s was a rather isolated country and therefore was far behind any of the Western powers in almost all aspects. They first were able to make a name for themselves on the international stage once they began developing their agricultural technology and expanding their trade capabilities (Levinson 2016, 47). The miracle was able to occur later on in Japan thanks to the deeply rooted symbiotic relationship between government and business that was established and advanced through the Meiji Reforms (Levinson 2016, 33). Prior to the reign of the Meiji Emperor in 1868, Japan was heavily controlled by hundreds of semi-independent feudal lords and was a primarily an agricultural nation with a week military and little significant technological development (Vogel 2010, 205). At the end of the Meiji period in 1912, Japan was left in much better standing. Reforms instituted by the Meiji Emperor included a highly centralized, bureaucratic government, a constitution establishing an elected parliament, a powerful military, and an established and rapidly growing industrial sector with modern technology (Vogel 2010, 208). These drastic changes imposed during and after the Meiji reign enabled Japan to modernize and eventually propel their economy and ultimately established the basis and skills that would later be necessary for the economic miracle to have occurred.

Scholars commonly argue that Japan’s unique economic miracle would not have been possible without the help of its most powerful ally: the United States. Because America’s foreign priorities during the early Cold War focused on forming strong alliances with anti-communist nations, it was luckily more than willing and able to aid Japan (Beckley 2018, 4). They sought to preserve democracy in Japan while also preventing other world powers like the Republic of China and the Soviet Union from gaining access to Japan’s resources (Beckley 2018, 4). The military and political control of Japan by the United States and its allies in Japan was called The Supreme Commander for the Allied Powers or SCAP (Beckley 2018, 5). American’s first occupied Japan on September 2, 1945, on what is now referred to as VJ day or Victory over Japan day under the leadership of General Douglas MacArthur; from this day on, they took several measures which arguably laid the groundwork for the economic growth that would follow in the years to come (Beckley 2018, 6). The Allied Powers in Japan, mainly composed of American forces, took a form of indirect rule over the nation due to the prior existence of a government, however, they ruled in a rather direct manner. The first item on the U.S’s agenda was to demilitarize Japan, this was carried out through the creation of the Constitution of 1947 by the occupiers (Beckley 2018, 6). In this Constitution, Japan officially established itself as a democratic state with a political system closely resembling the one created in the American Constitution. It provided basic liberties such as life, liberty, and the pursuit of happiness to even things like education, healthcare, police protection, work, and a decent standard of living (Beckley 2018, 7). The most significant section of this document was Article 9. Article 9 effectively banned the establishment of any and all military forces as well as deprived them of the option for them to wage war on another country ever again and more importantly established the United States as the sole guarantor of Japanese security in the event that there is conflict (Beckley 2018, 13-14). The Japanese economy was benefited by this Article specifically as it saved them a considerable amount of money that was no longer having to be allocated to their own military spending, therefore it is highly credited with being a factor of their economic miracle.

The alliance with the United States and the policies created through their newly acquired Constitution also allowed Japan to better protect their industries and markets, thus stimulating their economy in a way that the other world powers were not able to do as quickly or as efficiently (Beckley 2018, 11). The Supreme Commander for the Allied Powers, also referred to as SCAP, set forth a series of reforms with the intentions of democratizing the country as well as preventing the spread of communism that was so affluent during the Cold War era. These reforms included the breakup of the zaibatsu, land reform, and labor democratization (Beckley 2018, 2).

The Occupation of Japan by the SCAP saw the breakdown of the zaibatsu in efforts to weaken Japan’s military power. Zaibatsu is a Japanese term referring to the business conglomerates mainly controlled by families whose large influence and size allowed for them to harbor control over significant parts of the economy especially throughout the Meiji era (Ozahaki 2001, 244). The zaibatsus were corrupt in how they were given preferential treatment by the government in the form of lower taxes and direct government funding to expand the companies. This favorability and concentration of industrial control created an unhealthy relationship between workers and management, repressed wages, impeded citizens ability to form labor unions and the ability for independent businesses to rise by entrepreneurs, all of which ultimately placed a great barrier on the creation of a middle class in society (Moran 1949, 241). Thanks to the occupied powers, the zaibatsus were eventually dismantled by breaking up the large holding companies and selling their stocks to the general public (Ozahaki 2001, 244). In addition to breaking down the zaibatsus, they created new separate laws – The Anti-Monopoly Law and the Decentralization Law – to prevent any similar business conglomerates from rising in the future and negatively impacting the economy yet again. The Anti-Monopoly Law governs unfair business practices in Japan by prohibiting the abuse of dominant market positions and all cartel activities (Ozahaki 2001, 243). On the other hand, the Decentralization Law required that any pre-existing company with market control reduce in size (Ozahaki 2001, 248). The eventual disintegration of the zaibatsus in Japan’s economy by the SCAP led to the inevitable rise in competition amongst all Japanese industries which spearheaded the rapid postwar economic miracle.

Another reform implemented by The Supreme Commander for the Allied Powers meant to help bolster Japan’s economy from within and democratize the nation were land reforms. These transformations called for the forced liquidation of land that was both occupied and farmed by the landlords, it was then bought up by the government who proceeded to redistribute the land to tenant farmers (Beckley 2018, 17). This shift in land ownership was very significant, especially to the Japanese economy because, in prewar Japan, about two-thirds of all land farmers had to rent the land they tended to and the land ownership itself was concentrated in the hands of wealthy landowners who usually did not farm (Beckley 2018, 18). SCAP came into Japan to dismantle this system to firstly transfer land ownership to farmers who actually cultivated the land and away from wealthy landowners, and secondly to improve farm holding practices for those who still continued as tenants. SCAP successfully did so, and by 1950 90% of the land was owner-operated compared to the prewar number of merely 54% (Beckley 2018, 18). Because of the Japanese government’s as well as the countries citizen’s eagerness to modernize, the land reforms initiated by the SCAP were implemented rapidly and positive results were evident soon after. The effects these grand changes had were deeper than just economic, there was also a change in the social hierarchy as landlords were stripped of their title which had previously placed them above the farming class and thus brought them to be seen as equals in the eyes of society (Beckley 2018, 19).

The third and final major reform implemented by the United States in Japan to democratize the nation which had great positive effects on their economy and substantially helped them reach their economic miracle post war was labor democratization. Prior to the dismantling of the zaibatsus by the SCAP, labor unions were not able to be formed and this consequently led to low wages and poor working conditions (Beckley 2018, 16). A single piece of legislation introduced in December of 1945 led to a rapid and substantial change for workers, it was called the Trade Union Law and for the first time in Japanese history it established the legal right of workers to join in and organize trade unions (Moran 1949, 241). In October 1945, only five labor unions with 5,300 people existed, but by March 1949, 36,500 labor unions were created and were comprised of 6,910,000 workers (Moran 1949, 242). One of the first triumphs by the newly established labor unions was the successful push for the adoption of lifetime employment. Lifetime employment meant employees were hired straight out of school by large companies and it guaranteed them a job until they reached the mandatory age of retirement (Moran 1949, 246). This made companies more willing to invest more money in training and emphasized worker loyalty. The Trade Union Law single handedly was responsible for a rise in wages and improved working conditions nationwide. These benefits expanded the citizen’s income and buying power and accordingly increased the domestic consumption market and is, therefore, an important factor in Japan’s rapid economic growth, also known as the economic miracle.

While many scholars argue that the Japanese economic miracle came as a result of reform policies implemented by the United States, an opposing argument claims that the ability of the Japanese people to mimic Western countries and work fiercely ultimately led to their great and rapid economic success. Policies do not work if the country and its people do not work just as hard to carry them out and see real results. The Japanese people proved themselves to be goal-driven and adaptable which I argue is the most important factor for Japan’s rapid economic miracle.

Japan rapidly graduated from an agriculture and basic industry focused economy to become one of the most advanced science and technology nations in history. The Japanese’s unique and impressive ability to learn from and replicate Western countries technologies is greatly responsible for their economic miracle. While Japan had little technological innovations of their own making, using technological approaches noted from foreign countries, they began to develop their own technology through large investments in research and technology (Katz 1998, 149). One of the first innovations that played a large role in their economic growth spurt was the development of the mass production system that they were able to execute using various industrial methods practiced in Western countries, this system greatly decreased the cost of production and thus also had influence in the increased wages seen during this period (Katz 1998, 150). Japan began to partake in global trade and their high-tech and industrial goods became sought after due to their high qualities. It is important to recognize that technological innovation in Japan would not have been as impactful had it not been carried out by the Japanese people’s skillfulness and determination partnered with domestic innovation. Not only did the mass production system push Japan forward in a few industries, but this innovation spread to several other industries and contributed to rapid growth within them as well (Katz 1998, 150). These innovations saw Japan rise to the international arena and compete with other great world economic powers in the steel, shipbuilding, and automobile industry. For the first time since the end of World War II, Japan made a name for itself on the international trade arena through the hard-work of its peoples and the apparent growth of many of its industries.

The United State’s efforts to dismantle the zaibatsus surely helped Japan thrive, however, the drastic change in work culture in the nation carried out by the Japanese people themselves had a greater impact on their economic miracle. The zaibatsus, as discussed before, hindered economic growth in the country, but upon their breakdown, many changes occurred in the business cultures and practices of Japan. When the zaibatsus were in place, there was little interaction between labor and management, but with the creation of labor unions, this completely changed. With this transition, companies began to treat their employees better in exchange for loyalty and this had direct impacts on the success of the businesses (Moran 1949, 246). Another, arguably more important, business practice that changed was a shift in management systems. Businesses were now managed by hired, qualified professionals rather than the wealthy owners who only had financial interests in the success of the company (Moran 1949, 247). These changes may seem minimal but their effects were far from it, working conditions and wages increased dramatically and the presence of qualified managers created an innovative work environment which eventually led to Japan’s relevance in both domestic and international trade competition and was a significant step in their economic miracle. The increase in wages also led to a higher savings rate amongst the Japanese people which in turn led to more money to invest by providing the banks with money to fund it.

Although the United States directly implemented policies to help Japan develop, many policies that led to their extraordinary growth came from within. The first important piece of endogenous legislation was the Yoshida Doctrine, credited to Prime Minister Yoshida Shigeru. The Yoshida Doctrine was a strategy adopted post World War II in which economics was to be the main focus of Japan’s reconstruction of their domestic economy while depending on the United States for security in accordance with Article 9. The Yoshida Doctrine is also known for shaping Japanese foreign policy throughout the Cold War and beyond (Nakamura 2002, 56). The economic impact this doctrine had was great savings on military spending due to their outsourcing of security and the consequent reallocation of these savings on reconstructing the economy.

Another piece of legislation that allowed Japan to grow substantially was the Income Doubling Plan of 1960 introduced by Prime Minister Hayato Ikeda. As its name suggests, the plan came with the promise to double everyone’s income in a decade, Ikeda was able to do so in just 7 years (Nakamura 2002, 64). It essentially reaffirmed the government’s responsibility for social welfare, vocational training, and education, while also redefining growth to include consumers as well as producers. Additionally, it focused Japan’s priorities heavily on developmentalism and identified industries that had strong potentials and invested more money into them in order to reach its long-term goals (Nakamura 2002, 68). Japan went from having an average growth rate of 10.8 percent in the 1960s to become the world’s second largest economy just a few years later in 1968, this would not have been possible without the implementation and direct effects from the Income Doubling Plan (Nakamura 2002, 68).

When discussing any aspect of the Japanese economy, especially postwar, it is impossible to ignore the large role of the Ministry of International Trade and Industry or MITI in the growth of their economy. MITI was in charge of both foreign and domestic industrial policies as well as directing investment. It provided protection from foreign competition, technological intelligence, help in licensing technology, access to foreign exchange, and assistance in mergers (Johnson 1982, 414). They had the best interest of businesses in mind and supported them through various methods but most effectively by creating a situation that gave some businesses advantages if they saw a long-term potential for success. Accordingly to this, MITI mainly supported the steel, shipbuilding, chemical, and machinery industries due to their anticipated potential for growth and international expansion (Johnson 1982, 418). MITI was so significant because of its perceived grand role in Japan’s rapid economic expansion and its role as the primary agent in initiating Japan’s development strategy. It was also groundbreaking because of its representation of Japan’s interests in the World Trade Organization and international trade (Johnson 1982, 419). Overall, MITI is one of the most important factors in Japan’s rapid growth and expansion which led to their economic miracle.

Japan postwar clearly rose to challenge even the United States in terms of economic growth, living standards, and technological capabilities in a short amount of time never before seen with any other country. In this paper, I have introduced and discussed the two main arguments for Japan’s astonishing economic growth after their defeat in World War II: the exogenous explanation of their alliance with the United States, and the endogenous explanation of the Japanese people’s policies and self-motivated qualities. The economic miracle did not come about simply because of the policies implemented by the United States and SCAP, in fact, without the additional skills and policies of the Japanese people the economic growth would arguably have been substantially smaller. The basic factors for growth had been laid out long before the American occupation of Japan, Japan had and continues to have one of the worlds most educated and dedicated workforce who commit themselves to hard work, organization, and group effort.

Works Cited

  • Beckley, Michael, et al. “AMERICA’S ROLE IN THE MAKING OF JAPAN’S ECONOMIC MIRACLE.” Journal of East Asian Studies, vol. 18, no. 1, 2018, pp. 1–21., doi:10.1017/jea.2017.24.
  • Honda, Masatoshi. “Paradigm Shift: Japan’s Foreign Policy in the New Era.” Georgetown Journal of International Affairs, vol. 3, no. 1, 2002, pp. 103–109. JSTOR, www.jstor.org/stable/43133481.
  • Johnson, Chalmers. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford University Press, 1982, p. 412-465, www.sup.org/books/title/?id=2791.
  • Katz, R. (1998). Japan, the system that soured the rise and fall of the Japanese economic miracle / Richard Katz. Armonk, N.Y: M. E. Sharpe.
  • Moran, William T. “Labor Unions in Postwar Japan.” Far Eastern Survey, vol. 18, no. 21, 1949, pp. 241–248. JSTOR, www.jstor.org/stable/3024155.
  • Nakamura, Takafusa, 1925-. The Postwar Japanese Economy: Its Development And Structure. [Tokyo]: University of Tokyo Press, 2002.
  • O’Bryan, Scott. The Growth Idea: Purpose and Prosperity in Postwar Japan. University of Hawaii Press, 2009.
  • Okazaki, Tetsuji. “The Role of Holding Companies in Pre-War Japanese Economic Development: Rethinking Zaibatsu in Perspectives of Corporate Governance.” Social Science Japan Journal, vol. 4, no. 2, 2001, pp. 243–268. JSTOR, www.jstor.org/stable/30209328.

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