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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.