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The Japanese Economic Miracle

post-war economic growth--a miracle!
by

Jared Pangier

on 26 September 2012

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Transcript of The Japanese Economic Miracle

The Japanese Economic Miracle How do you go from this? To this?
In such a short period of time? Thanks to a little guidance from a man in funny pants What was the American vision for Japan?

1. A Japan that would not challenge the U.S. for military supremacy in any theater

Achieved through the Peace Clause of the Japanese Constitution also known as Article 9, which banned Japan from maintaining any military force

2. A Democratic Japan

Achieved through the new Constitution which drew much of its inspiration from the US Bill of Rights (though not the 2nd amendment), New Deal social legislation, the liberal constitutions of several European states and even the Soviet Union.

3. And lastly a Japan that had a strong, liberal and open industrial base in order to serve as a significant trading partner to the U.S.

Achieved through introducing new economic legislation in particular regarding unions, labour standards and education reform, but more than anything the abolishment of Zaibatsu What were Zaibatsu?

They were industrial and financial business conglomerates in prewar Japan which were set up as family controlled vertical monopolies

While there were many of these groups the Big Four were: the Mitsubushi, Mitsui, Sumitomo and Yasuda Groups.

The Zaibatsu controled most of Japans economy and even had there own political parties (Rikken Minseito - Mitsubishi Group) The Family Supplier Manufacturer Distributor What to replace them with? Keiretsu

Keiretsu were also business conglomerates, but rather than being controlled by a family, they were tied together by share purchases centered around a single bank. There were three types of keiretsu:

1. Kigyoōshudan - horizontally diversified business groups
2. Seisan keiretsu - vertical manufacturing networks
3. Ryutsu keiretsu - vertical distribution networks Head Body Body Body Body Body Body Body Body Body Body Body Body Bank Bank Bank Supplier Supplier Supplier Manufacturer Manufacturer Manufacturer Distributor Distributor Distributor The effects of this organizational structure of the economy were profound.

First, Japan experienced virtually no hostile takeovers as no one could challenge the power of a bank

Second, the Japanese system was built to withstand any pressures coming from international trade competition

Third, the system was incredibly stable and as a result of being so intricately interwoven it managed to keep an effective monopoly on the domestic market and keep foreign competition out Another important aspect of the Japanese economy was the workers culuture.

Japan turned into one of the most unionized economies in the world.

Workers would join companies for life and their success would not depend on their personal ambition or drive but rather on the success of the company.

Volountary quitting employment at a company was and still is today reffered to as "treason".

Further individualism was removed by implementing Shunto - annual wage negotiations between unions and employers. After the Americans departed in 1952 the Japanese government managed to repel certain limiting factors on their economic growth with the first being American style anti-monopoly laws

The government went further to encourage "overlending" where the Japanese Central Bank pumped cheap money into private industry encouraging massive industrial growth but also ensured the dependency of industry on the Central Bank.

The second way Japan established control over the industry was by forming the Ministry of International Trade and Industry, which held direct authority over most industry regulation, and as such, was able to implement any government policies it wanted. What were those policies? Japan then shifted its economy to export trading and managed to establish the first working example of State Capitalism.

This was at odds with the Western notion of Laissez-faire economics, but Japan was allowed to continue as the west needed a strong Japan that could withstand the advance of communism in Asia. Yes, but State Capitalism works better! Why does it work better?

Because the industry is not profit-orientated and with the Central Bank covering any immediate losses the Government can steer industry towards long term strategic goals.

The goal was LONG TERM domination of key industrialized global markets i.e. the semiconductor industry where the Japanese made a decade of losses only to push out American competitors in the long run. Through the 60's and 70's Japan managed to establish itself as one of the great global economic powers and eventually started worrying American big business Japan managed to beat the west at their own game and its rise seemed unstopable.

Until Japan reached the limits of its natural resources and geography.

In 1991 the japanese economy crashed as the overheated industry reached the limits of its capabilities and since then has experienced virtually no growth.

Since then Japan has tried to emulate the western system more in order to improve efficiency with measures such as de-unionization of the workforce In Summary:

After WW2 Japan had no military expenditure whatsoever and as a result of lax monopoly laws and government intention to heavily regulate the industry Keiretsu emerge

Through the Central Bank and Ministry of International Trade and Industry the government manages to assert its control over industry.

This allows the government to implement a massive policy of industrialization and with the government covering any temporary economic losses the Industry was able to focus on long term dominance of global industrial markets

As a result of the government policies and a highly organized and specialized workforce Japan's industry kept growing at a colossal rate (up to 10% p.a.) until the limits of natural resources were reached and the economy crashed Douglas MacArthur as Supreme Commander for the Allied Powers (SCAP) It just works!
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