Economic Miracle: Japan 1946-1973

Japan lies in the Eastern Coast of Asia between the Pacific Ocean and the Sea of Japan (Ministry of Foreign Affairs 2007). Its total land area is roughly 378,000 square kilometers. It consists of Hokkaido in the North, Honshu at the center, and Shikoku and Kyushu in the South (Ministry of Foreign Affairs). Japan at present competes for world leadership in terms of GDP per capita and wage per hour with the United States (Luu et al. 1996). In comparison, Japan’s GNP at about $34,000 is higher than the U.S.A.’s only $25,000. Japan’s wage per hour is roughly $16 compared to only $12 of the U.S. These figures demonstrate that Japan is 35-45% ahead of the U.S.A. (Luu et al.). This is Japan economy today.

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Between 1941 and 1945, World War II raged and ended with Japan’s surrender and a shattered economy (Ministry of Foreign Affairs 2007). It was occupied by the Allied Powers up to 1952 when it was reduced to the status of a “less-developed” country. Its per capita consumption was roughly a fifth of that of the U.S.A. In the two succeeding decades, Japan entered an annual growth rate of 8%, raising it from the “less-developed” to a “developed” status in the postwar era. This was the result of a set of developments, which included high rates of personal savings and , a labor force with a strong work ethic, a sufficient supply of cheap oil, innovative technology, and an effective government intervention in private-sector industries. Japan became a major beneficiary of the principles of free trade promoted by the International Monetary Fund and the General Agreement on Tariffs and Trade.

Its economy grew to become the second largest to that of the U.S. In 1968. Between 1950 and 1970, its city population increased from 38% to 72%, especially in the industrial work sector. Its exports grew at 18.4% on the average per year in the 60s. After the mid-60s, Japan realized a current balance surplus each year, except immediately after the 1973 oil crisis. But its overall economic growth continued as a result of strong private-sector facilities investment, drawn from high personal savings ratio in addition to significant changes in Japan’s industrial structure. The economy veered its focus from agriculture and light manufacturing to heavy industry. In time, iron and steel, shipbuilding, machine tools, motor vehicles and electronic devices dominated its industrial sector (Ministry of Foreign Affairs).

The factors that made Japan an enduring economic miracle were categorizes into its government, a protected economy and external assistance (Luu et al. 1996). During the Meiji era, the centralized government moved into the fiscal and military side. It first improved the railways and the postal services, which, in turn, helped the shipping industry. It likewise boosted the development of rural industries. Then the Meiji government established model industries, such as textile and glass, which stimulated the industrialization process. The Liberal Democratic Party stirred private businesses until the government made it a national priority to raise the national economy. The Ministry for International Trade and Industry or MITI was a government association, which fixed production targets, future economic plans and handled all of Japan’s economic problems. The MITI also set up scientific and management towns for the improvement of production and educational programs and developed management skills necessary for modernizing the economy. In these two periods, the government of Japan invested a lot of money and effort in communication, skills and education, such as the construction of universities. Business organizations hired students from famous universities and retirees as consultants on plans for constructing strategies and decision-making function (Luu et al.).

Another factor was Japan’s protected economy. As far back as in the 20s, it enjoyed a dual economy wherein and with small factories (Luu et al. 1996). Small businesses produced what large businesses needed and delivered these products through a “just-in-time” system. In the postwar period, government policy protected the domestic market. (Luu et al.).

The phenomenal economic growth of Japan was also enhanced by external assistance (Luu et al. 1996). Its past model was to borrow from the government and apply the borrowing to the base of society. But because of scarce resources, not all the problems could be solved internally. Japan had to draw from outside help. It had to secure raw materials from its colonial empire or from other countries through its profits from trade and exports. It purchased industrial technology from Western Europe. It also obtained capital from the Korean War, which further enhanced the economy. The Japanese people’s unified character and viewpoint also contributed much to the success of the economy. They saw individuals as groups and believed that the individual should sacrifice for the good of the group. They were willing to work for no pay in the scientific town of MITI. They also forged wholesome interpersonal relationships. They believed that there should be closed relationship between the economy and politics. As a result, business organizations and political organizations mushroomed, especially in Tokyo, where they interacted. Thus, internal factors merged with external factors in creating Japan’s economy. These internal factors were appropriate government policy and the right or homogeneous nature of the people. And the external factors were the assistance and opportunities from the rest of the world (Luu et al.).

But the one factor, which stood out in the growth of Japan’s economy, especially in the rural areas, was the Land Reform of 1946-47 (Bernier 1980). It completely wiped out the landlord-tenant class relations, which was a main feature of the country since the late Edo period in 1600 to 1868. It was imposed on the government by the Supreme Command of Allied Powers or SCAP. It drew from the premise that landlordism was a major cause of jingoistic and militaristic tendencies, which characterized the Japanese society in the 30s and the 40s. It was designed to decimate rural radicalism, then an important aspect of agrarian Japan in the 20s and the 30s. Rural peasants were miserable under the landlord system. This system was, in turn, a major source of social unrest and which could be used to support left-wing groups. The elimination of these socialist tendencies in the rural areas called for the return of the land to the tillers. The majority of farmers had to become small property owners. The emergence of a rural middle class could evolve into a conservative political force to keep Japan from falling for communism (Bernier).

The Land Reform initiative of 1946-47 proved successful at least in translating the peasantry into a conservative bloc (Bernier 1980). Since 1948, the countryside overwhelmingly voted for . The Reform, however, failed to form the desired “middle class” of farmers. The Reform did not provide for equal landholdings. In 1950, 73% of all farm households owned less than one hectare of arable land. Since 1955, Japanese agriculture had to endure the pressure of rapid economic growth in the form of heavy and chemical industries, which were dominated by monopolist capitalists. Throughout the 20th century, the rural population of Japan decreased in proportion to its total population. From 60% in the 1900s, it went down to 48% in 1950, 31% in 1965, and 19.9% in 1977. This rural population grew from 26 to 37 million between 1900 and 1950, but sharply decreased to 22.5 million in 1977. Due to the destruction of homes and industrial establishments in the cities and the repatriation of Japanese soldiers and former colonists, the rural population grew in 1950. The average annual decrease in the 22-year period between 1955 and 1977 remained at 2% and reached nearly 8% since 1968. It was different for the population actively engaged in agriculture. The 1955 proportion was nearly equal to that of the 1920s. The farm population decreased to about 12 million or 30% in 1960 and to 6.2 million or 11.5% in 1977. The annual rate of decrease stood at about 3% from 1955 to 1977. This downward trend in the active farming population was considered partly as a continuation of the trend already apparent during the late Edo period. This increase in the proportion of non-agricultural to farm labor appeared to have been due to the influx from over-populated rural areas. The trend did not only extract excess farm population but also from the farms. It transformed cultivators into low-paid workers in factories, the construction industry and the services sector. The merging of agriculture and the capitalist economy pushed Japan into a new phase (Bernier).

The type and behavior of government was the primary factor to the successful evolution and establishment of Japanese economy. Prime Minister Tanaka Kakuei’s Basic Economic and Social Plan of February 1973 projected that the country would enjoy continued high growth rates for 1973-77 (Ministry of Foreign Affairs 2007). However, the domestic macroeconomic policy had then resulted in a rapid increase in money supply, which stirred speculation in the real-estate and domestic commodity markets. At the time, Japan suffered from a double-digit inflation, owing to the outbreak of war in the Middle East, which eventually led to an oil crisis. Energy costs increased substantially and the yen’s exchange rate was shifted to a floating rate. The eventual recession reduced expectations of future growth and reduced private investment. Economic growth went down from 10% to 3.6% during the period 1974-79 and to 4.4% in the decade of the 80s. But despite the oil crisis and its consequences, Japan’s major export industries stayed competitive through its cost-cutting policy and increasing efficiency. It reduced industrial energy demands and allowed the automobile industry, along with other industries, to improve. By the late 70s, the computer, semiconductor and other technology and information-intensive industries entered a period of rapid growth. During this high-growth era, exports continued to support Japan’s robust economic growth in the 70s and in the 80s. However, the problems encountered on account of its growing balance of payments surplus urged for the opening of domestic markets and a stronger focus on domestic demands as its engine of economic growth (Ministry of Foreign Affairs).

Today, the Japanese economy is the second larget market economy in the world (Ministry of Foreign Affairs 2007). Its 2002 GNP was recorded at 532.96 trillion yen. Its per capita national income in 2001 was U$24,038, which ranked Japan as the fifth among OECD member nations. Since the collapse of its so-called “bubble economy” in th 90s, its GDP growth stagnated. Sustained recovery did not loom clear ahead. The Japanese government has since been experimenting on a wide range of structural and regulatory reforms. The major changes have also been occurring in the corporate world as businesses struggle to spark and increase competitiveness by veering away from traditional employment practices, such as lifetime employment and seniority-based wages (Ministry of Foreign Affairs).

The type and behavior or government also depended on the leaders, which run it. Yoshida Shigeru was the Japanese Prime Minister after World War II ( 2007). He was ambassador to Britain in the 30s. In World War II, he was arrested for trying to force an early Japanese surrender and was not released until the start of the Allied occupation of Japan in September. In 1946, he became Prime Minister. From that year to 1954, he formed five separate cabinets and guided Japan back to a phenomenal level of economic prosperity as well as charted a course for postwar cooperation with the U.S. And Europe. In 1951, Yoshida negotiated the peace treat, which ended World War II and a security agreement between Japan and the U.S. He was the most powerful political figure in postwar Japan until 1954. From 1930-32, Yoshida was Japan’s ambassador to Italy and to Great Britain from 1936-39. In the latter part of 1944, he was arrested for advocating for peace but worked again for the government after Japan surrendered in 1945. He was head of the Liberal Party. He then served as Prime Minister five times between 1946 and1954, the start of Japan’s evolution as an economic miracle. During his administration, a new Constitution was promulgated, land reforms instituted, American occupation of Japan ended, and Japan’s economic transformation. But unresolved trade problems with mainland China, rearmament, alliance with the U.S. And economic rehabilitation finally compelled him to withdraw from the post. His policy for Japan’s postwar recovery was called the Yoshida doctrine. It focused on the country’s resources on economic production with the support of well-trained workers. At the same time, it advocated the adoption of the U.S.’ position on security and international politics. The doctrine was considered a safe course throughout the Cold War as it led to Japan’s incredible economic growth, but later in the 90s, it would create a new set of problems. Large trade imbalances and protectionism would bring on overwhelming outside pressure to get rid of unfair trade practices. From within, businesses with global markets urged for more flexible workforce and open markets for their foreign goods. Japan was also pressured to assume a greater share of the international military burden, characterized by distrust in the military and long-held pacifism. Yoshida’s policies relied on U.S. military protection at the expense of independence in foreign affairs (

Yoshida was a product of the Tokyo Imperial University ( 2007). He began his diplomatic career in 1906 just after Japan’s victory over Russia in the Russo-Japanese War. Throughout the 30s and before World War II, he participated in Japan’s imperialist movement. After his imprisonment in 1945, he became one of Japan’s most important postwar leaders. He enforced a pro-United States position and advocated pro-British ideals. His knowledge of Western societies from education and political work in foreign countries made him the perfect candidate for selection by the Allies who occupied Japan. He was first replaced by Tetsu Katayama on May 24, 1947, but he was reinstated as the 48th Prime Minister on October 15, 1948. It was under his rule that Japan began to rebuild its industrial infrastructure, destroyed by the War and heavily invested on unrestrained economic growth. Many of the concepts applied under his doctrine and rule still had impact on Japan’s political and economic policies afterwards. However, since the 1970’s environmental movement, the economic surge and the end of the Cold War, Japan has struggled to redefine its national goals. Yoshida was retained through three succeeding elections as the 49th Prime Minister on February 16, 1949; the 50th on October 30, 1952, and the 51st on May 21, 1953. But he was finally topped on December 10, 1954 when he was replaced by Ichiro Hatoyama. He retired from the Diet of Japan in 1955 (

The Japanese government today has changed many forms since its beginnings as a sovereign nation (Luu et al. 1996). It evolved from the aftereffects of World War II and the occupation of Japan by U.S. forces. Its constitution was ratified by General Douglas McArthur. It contained a bill of rights similar to that of the U.S., continuing peace of the Japanese people and the role of the Emperor as figure head of the government. It likewise had a provision, which translated the Japanese army into a much weaker version than the earlier one before the War. This postwar army would perform a , with the U.S. army providing most of the left-over defense. The constitution also provided for three branches of government with a series of checks and balances, like those of the U.S. Constitution. These branches of government were the executive, legislative and judicial branches, again similar to those of the U.S. government (Luu et al.).

Bibliography (2007). Shigeru Yoshida. 4 pages. Encyclopedia Britannica: Answers Corporation

Bernier, B. (1980). The Japanese peasantry and economic growth since the land reform of 1946-47. 40 pages. Vol 12 issue 1. Bulletin of Concerned Asian Scholars: Questia Media America, Inc.

Luu, L.T. et al. (1996). Summary report on Japan. Team # 6. Chinman: University of Hawaii..

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Ministry of Foreign Affairs (2007). Japan fact sheet. 4 pages. Web Japan. Retrieved March 14, 2007 at