HPAVC/HPAVC CD-ROM.iso/HOMEWORK.ZIP/ECOJAGG.TXT

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Brian R. Duff, J.D.

Introduction

I.  Economic Overview

    A.   Postwar GNP Levels

    B.   Postwar Growth Factors
         1.  General Growth Factors
         2.  Domestic Market Improvements
         3.  Government Interventions

II. Period of Economic Change

    A.   Occupation period economy
          1.   Immediate Postwar
          2.   Dodge Line (1948-50)
          3.   Korean War (1950-55)

     B.   The Technology Revolution  Conclusion




JAPANåS POSTWAR EXPANSION

 This paper briefly describes Japanås rapid postwar economic expansion.  Section I describes
 the overall changes in GNP and the various growth factors contributing to Japanås postwar
 expansion.  Section II describes the basic periods of change in Japanås economic expansion
 after World War II.

I.  Economic Overview

 Japan started to become industrialized about 80 years ago and is now know as the most fully
 developed industrial country in Asia and is one of the leading industrialized countries in
 the world.  the rapidity of Japanås postwar economic growth has been a somewhat remarkable
 exception in modern economic history.  Japanås postwar and past development record along
 with some problems it has overcome throughout the duration were definite factors leading
 toward itås economic success today, and this new industrialization has brought on some new
 problems of today.  Japanås economic growth has been leveling off over the past years with
 the other major industrialized countries in the world.  The emphasis of this paper is on
 how Japan came to be what it is today from itås dropping off levels during the second world
 war to itås postwar expansion.

    A.  Postwar GNP Levels

 The achievements of the Japanese economy since the second world war are clearly shown in
 the high rate of growth in GNP (Gross National Product).  The levels and rate of change in
 Japan in both real GNP and real GNP per person employed for selected years from 1952 to
 1980 are shown in the following table:

GROSS NATIONAL PRODUCT AND GROWTH RATES 1 --selected years from 1952-1980--
__________________________________________________________                Year
                             GNP                                              GNP
                              (in billions of yen)                 per person in labor force
                                                       (in thousands of yen)
__________________________________________________________     1952      13,805       371.1     1957
19,481       455.1     1962      31,105       682.7     1967      51,361    1,030.7     1972      84,577    1,626.5
    1977    105,355    1,932.4     1980    124,068    2,275.1
__________________________________________________________


GROWTH RATES __________________________________________________________                Year
                                      GNP
GNP
per person employed __________________________________________________________     1952-57
7.1      4.2     1957-62      9.8      8.4     1962-67    10.6      8.6     1967-72    10.5      9.6     1972-77      4.5      3.5
    1977-80      5.6      5.6          1952-80      8.2      6.7
__________________________________________________________     source:  D. Daly, Economic
History,  Kodansha Encyclopedia Japan,  p. 145 (1983)

 1952 is the first year after the war that Japanås government was no longer under direct
 rule of occupied forces (mainly the U.S.).  The data above starts at 1952 and shows five
 year growth rates up to 1980.  Over this 28-year period (1952-1980), the increase in GNP
 per person employed amounted to 6.7 per year compounded.  This rate of growth shows a
 doubled amount of output per person employed about every 10 years and a doubling of output
 every 8 years during the period of rapid growth from 1957-1972.  Furthermore, the rates of
 growth in Japan in total and per person employed were higher during the postwar period than
 in any of the major industrialized countries during the same time period.2

    B.  Postwar Growth Factors

  1.    General Growth Factors

 The rapid rate of Japanås industrialization is not merely a postwar phenomenon, but one
 that started some time ago triggered by such events as the Meiji Restoration in 1868 and
 other foundations, however certain postwar factors may be acknowledged as contributing to
 the postwar recovery and the long term standard growth in Japan.  Industrial production had
 fallen in 1946 to 27.6 percent of the prewar level (1934- 1936) figure, but regained this
 same level of production in 1951 reaching 350 percent by 1960.  In addition there was a
 sharp decrease of Japanås military spending, and this money was then used for postwar
 reconstruction and improvement in the domestic markets of its home land.3  Japanås economy
 was steadily rebuilding.

   2.  Improvements of Domestic Markets

 After the war, certain actions were taken toward reconstruction and improvement in Japanås
 home (domestic) markets, under the economic democratization policy pursued by the
 occupation forces, such as the dissolution of financial groups (Zaibatsu),  agricultural
 land reforms introduced and labor unions organized.  These three major reforms have on the
 whole contributed to the expansion of the home markets in Japan, which in turn stimulated
 investment in general.

 The dissolution of Zaibatsu was an attempt to deconcentrate big business in the western
 sense and open up the trade markets to smaller companies.  The land reforms virtually
 expropriated non-cultivation landowners from their tenant-operations, reducing tenanted
 land from 46 percent to 9 percent of the cultivated area, and transferring ownership of
 about three fourths of agricultural land owned by landlords to the tenants, thus improving
 the economic position of the farmers in Japan.  This was a so-called transferrance of
 income from the rich to the poor and farmers were able to do business as independent
 enterprises.

 The legalization of trade unions after the war increased the distribution share of labor
 income in the value of production.  With the introduction of the ╞Wagner Actà in Japan, in
 1946 more than 6 million workers were organized into unions almost over night and the
 numbers are far more than 8 million today.4  In addition to the legalization of trade
 unions, other government interventions after the war helped Japanås economy to expand.

 3.    Government Intervention

 In mentioning government interventions in the postwar period on must also understand the
 role of the occupation forces, because Japan was not free of the occupation until 1952.
 Prior to this date, much aid and assistance was given in the form of food and basic raw
 materials by the occupation forces and mainly by the U.S.      The occupied government of
 Japan contributed to the economy in two major areas.  The government contributed greatly to
 capital accumulation and high capital investment after the war in leading raw materials.
 Other major contributions were in the field of taxation through a re-valuation of assets,
 an extraordinary depreciation system and a system of various reserves.5  These and other
 government interventions however will be mentioned in the right chronological order and
 elaborated on later.


II. Periods of Economic Change

    A.  The Occupation Period Economy

 The American-led occupation of Japan after World War II lasted 80 months from August 14,
 1945 to April 28, 1952 and helped rebuild Japan and its economy until Japan could stand on
 its own feet again.  During this time, there were some smaller categorized periods of
 aggression such as the reform period right after the war (1945-47), the reverse course
 period (1947-48), the Dodge line period (1948-50) and the Korean War (1950-52).

  1.   Immediate Postwar Economy

 The immediate postwar period of the American-led occupation includes the reform and the
 reverse course periods lasting about 3 years.  In 1945, the warås end found the country
 shattered, especially the major cities.  Of Japanås physical capital stock, 25.3 percent
 was lost to direct war damage.  Of the prewar empire, 45 percent of the land area was cut
 off both politically and economically.  Additional losses included the deterioration of
 land and other natural resources and the reducation of access to fishing grounds.
 Population increases compounded the economic problems.

 There were also two smaller problems to deal with during the same period.  One was
 dismanteling of the wartime control, rationing, and allocation system, which had largely
 replaced the free market as the basis of economic organization.  The second was the
 ╞bomb-shockà of the civilian form of divine intervention to prevent the twin disgraces of
 surrender and occupation, previously unknown in Japanås history. 6

  2.   The Dodge Line Period (1948-50)

 Another major period of change under the U.S. occupation of Japan was the Dodge Line period
 (1948-50).  At that time, the ultimate objectives of Japan were the rapid rehabilitation of
 the Japanese economy and the establishment of a fixed exchange rate.  the immediate problem
 confronting Japan was to come up with an effective anti-inflationary policy.  On December
 18, 1948, the State Department and the Department of the Army published a joint declaration
 titled the ╞Nine-Point Economic Stabilization Plan for Japanà.  The plan can be summarized
 as follows:

1.  To achieve a balanced budget at the earliest possible date by a stringent curtailment of
government spending and an increase in revenue;

2.  To accelerate and strengthen tax collection, including criminal prosecution of tax
evaders;

3.  To stringently reduce the extension of credit by financial institutions;

4.  To establish an effective program to achieve wage stability;

5.  To strengthen and, if necessary, expand the coverage of existing price controls;

6.  To improve the operation of foreign trade and exchange controls;

7.  To improve the effectiveness of the existing system of materials allocation and
rationing with a view to maximizeing the expansion of exports;

8.  To expand the production of all key raw materials and manufactured products;

9.  To improve the efficiency of the food supply system. 7

 In february 1949, Joseph Dodge, a former Detroit banker who had played a key role in the
 postwar currency reform in Germany, was sent to Japan as an ambassador with the authority
 to implement the new plan.  Shortly after his arrival to japan, Dodge presented his
 diagnosis of the countryås economic problems in a famous press conference with japanese
 reporters and later presented his prescription for dealing with these problems as a list of
 directives concerning the fiscal budget for 1949, and these directives consisted of five
 basic elements:

 1.  An Overbalaned Budget.  The government had been covering its large deficits by issuing
 short-term bonds and rolling them over.  The Dodge Plan forced the government to redeem
 these bonds as quickly as possible, even about the legally established rate, and proved to
 be a deflationary budget policy.

 2.  The Reduction and Elemination of Subsidies.  All price subsidies, subsidies
 guaranteeing protection against losses, and others paid from the governmentås general or
 special accounts were to be reduced as quickly as possible.

 3.  Suspension of New Loans From the Reconstruction Finance Bank.  All new lending from the
 above-mentioned bank would be suspended, and the government would redeem as quickly as
 possible all Reconstruction Finance Bank bonds issued from the general account.

 4.  A Fixed Exchange Rate and Elimination of Hidden Trade Subsidies.  A fixed exchange rate
 for the yen would be established immediately, and all hidden subsidies paid by the
 government for export and import trade through its Special Account for Trade funds
 abolished.

 5.  Establishment of the Counterpart Fund Special Account.  The counterpart Fund Special
 account would be funded by the sale of American relief supplies in Japan and would take the
 place of the Special Account for Trade Funds as well as the subsidies eliminated by the
 second item of Dodgås policies.  In other words, funds from the Counterpart Fund Special
 account would be supplied to key industries for plant and equipment investment, and to
 exporting and importing industries for acquiring foreign capital. 8

 These policies provided the framework for Dodgås economic policy for Japan, however debate
 continues as to whether the inflation could have been brought under control without it.
 the Dodge line was a truely drastic deflationary policy forced on Japan and, for all its
 success in curbing inflation, it threw the economy into a crises including widespread
 anxiety concerning the overall impact of deflationary fiscal policies and threw business
 into the so-called stablization panic.  On the other hand, issues of new currency by the
 Bank of Japan, which had increased by more than five times in 1946, more than nine times in
 1947, actually declined 0.4 percent in 1949.  the Dodge Line was quite effective in its
 original goal of curbing the intense inflation of the immediate postwar period.9

  3.   The Korean War (1950-55)

 The other major period before Japanås independence from the occupation forces and before
 japanås contemporary economy got under way was the Korean War (1950-52).  After the war
 began on June 25, 1950, with the approaching end of the Occupation of Japan, the economic
 policy of Japan was pursued by the simi-military economy that Japan almost immediately
 became for the United Nations forces in Korea.  the accumulated inventories of the previous
 year were sold either directly for Korea or for other world-wide shortages and Japanås
 economy returned to full capacity, bood conditions and high measured growth.

 The money supply was free from the Dodge Line constraints and inflations reappeared however
 three main achievement remained from the Dodge Line effortså balanced budget, the unified
 yen dollar exchange rate, and the dissolution of the price-control and rationing machinery.
  Japan however at the time was regarded as a marginal, or last resort, supplier of world
 markets, whose output was called upon in periods of scarcity especially in wartime and the
 Japanese revivial after the Dodge Line Constraints that were removed was clearly export-led
 and businesses began to rebuild themselves and move into the technology revolution.10

    B.   The Technology Revolution

 After the removal of the occupation, a quick take off towards modernization occured in
 Japan as it became more industrialized and moved into the technology revolution (1955-60).
 In the fall of 1955, the two leading conservative parties, the liberals and the democrats,
 united to form the Liberal Democratic Party (LDP), which has ruled the country ever since.
 Real per capita consumption returned to prewar levels in 1953, and by 1955, most of the key
 economic indicators had already risen higher than prewar levels.  This was followed by a
 spectacular growth in private plants and equipment in 1956 and 1957, which permitted the
 entire economy to step into a new period of postwar modernization and there was a sudden
 rise of new industries and new products .

 There was an overall change in the composition of exports which can be seen in the
 following table:

CHANGES IN THE COMPOSITION OF EXPORTS 11
_______________________________________________________________         Prewar          1955
   1965          1970          1975
_______________________________________________________________      Heavy industrial
Products        38.0    62.0    72.4    83.4     Metals        19.2    20.3    19.7    22.5         (Steel)
2.4    12.9    15.3    14.7    18.2     Machinery       2.8    13.7    35.2    46.3    23.1         (Ships)       0.1      3.9
8.8      7.3    10.8     Chemicals          5.1      6.5      6.4      7.0

     Light Industrial Products        52.0    31.8    23.2    13.0     Textile products    57.4    37.3    18.7    12.5
     6.7     Others        14.7    13.1    10.7      6.3

     Food Products      8.4    13.3      4.1      3.4      1.4

     Raw Materials          6.8      1.5      1.0      1.0
     _______________________________________________________________     Total export value
     ($100 mill)      6.9    20.1    84.5    193.2    555.5
     _______________________________________________________________      Source: T. Uchino,
     JAPANåS POSTWAR ECONOMY, p. 84 (1983)

 The steel industry led the materials manufacturing sector and launched many large-scale
 plant and equipment investment plans for the modernization in 1955.     During the five years
 of these plans, the industry enlarged blast furnaces, introduced new LD converters, and
 enlarged its continuous rolling facilities, creating huge new steel complexes equipped with
 fully integrated technology.

 The industry that developed superior levels of modernization fastest by international
 standards was shipbuilding.  By 1956, orders for new ships, principally oil tankers, had
 propelled Japan to the position of the largest shipbuilder in the world.  In a very short
 period of time, shipbuilding was transformed from a small industry depending on orders from
 the administrative guidance, to one of the countryås most important exporting industries.
 12

 In the spring of 1955, the Ministry of International Trade and Industry (MITI) announced
 its ╞peopleås carà (minicar) concept, and Toyota and Nissan began to invest heavily in
 automation.  During the same year, Toyota began sales of its Toyopet Crown, the first
 passenger car produced entirely in japan.  While total plant and equipment investment was
 not as great as in the materials industry, the pace of technological innovation was more
 remarkable in the home appliances industry, which benefited from developments in the
 electronics industry.  Japan no longer isolated from the international trading community as
 it was during the war, was then able to select the most advanced technology developed in
 the war for use in integrated industrial complexes that made the most of geographical
 conditions and large-scale combinations of technology within an industry and between
 related industries. 13

   The oil refining industry became a major drive toward modernization and intense
   competition developed between domestic and foreign capital as the industry increased.
   Other forms of energy were appearing at the same time.  During the 1955-65 period some
   issues of peaceful applications of nuclear energy arose.  All of the new leading exports
   and investments in plant and equipment continued to increase and build up Japanås
   economy.  More and more technologies were introduced into Japan over time and over the
   next 20 years japan under went a period of High-speed growth and full employment to the
   extent that Japan today is one of the most fully development industrial countries in Asia
   today due to the vast amout of exports and increased productivity in this postwar
   periods.14

Conclusion

 As seen by the facts presented herein,  beginning with occupation period immediately after
 World War II, Japan gradually became more and more industrialized and has become one of the
 leading industrialized countries not only in Asia but in the world.  This rapidity of
 Japanås postwar economic growth has been a somewhat remarkable exception in modern economic
 history.

  Today Japan is undergoing another major economic transaction, and Japanås role in the
  world economy is becoming far more than just exports.  Many areas of liberalization are
  taking hold.  Not too long ago, the Japanese government launched the most significant
  shift in the nationås economic policy since the Meiji Restoration and the beginning of
  Japanås industrialization over a century ago, Japan is now opening itself up to more and
  more imports.  Many obstacles to selling in Japan are now gone; however,  Japan is one of
  the worldås most competitive markets today and therefore imports into Japan are not as
  desirable in some areaås due to stiff competition.

 Not only japanås growth but the rapidity of Japanås postwar economic growth leading to
 where Japan is today was a somewhat remarkable exception in modern economic history.  But
 today Japan is faced with new problems as being one of the leading industrialized nations
 in the world such as the current high power of the Yen compared to the dollar and other
 problems that need to be solved in order to maintain stablization in the future, but it was
 this series of periods from the Dodge Line to the Technology Revolution that made Japan was
 it is today, a more economically interdependent and liberalized nation.


Endnotes:

1.    D. Daly, Economic History, Kodansha Encyclopedia Japan,     p. 145 (1983). 2.    Ibid. 3.    I.
Nakayama, INDUSTRIALIZATION OF JAPAN, p. 8, (1964). 4.    Ibid., at pp. 10-15. 5.    Ibid., at pp.
17-24 6.    M. Bronfenbrener, Occupation-Period Economy, Kodansha     Encyclopedia Japan, p. 154
(1983).

7.    T. Uchino, JAPANåS POSTWAR ECONOMY, pp. 48 (1983). 8.    Ibid. at p. 50. 9.    Ibid. at pp.
48-50. 10.    M. Bronfenbrener, supra p. 158. 11.    T. Uchino, supra at pp. 89-94. 12.    R. Komiya,
POSTWAR ECONOMIC GROWTH (1966). 13.    Ibid. 14.    T. Uchino, supra at p. 84.