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Reasons for Economic Success− Foreign Influences
Era of unprecedented high speed growth when Japan’s economy expanded at an average rate of 10% annually between 1950 to 1973. Japan continued to have a healthy economy well into the 1980s.
USA’s direct financial aid to Japan
USA provided more than US$1 million a day to Japan between 1946-1948 as part of the Government and Relief in Occupied Areas program. • • Kicked started Japan’s economic recovery through the injection of much needed liquidity. The aid was extremely crucial in helping Japan get back on its feet since it alleviated starvation, thereby preventing social unrest that could potentially hinder economic growth. More importantly, it equipped Japan with an able bodied work force to power Japan’s industries. This aid also trickled down to help Japan repair its damaged infrastructure which helped revive Japan’s prostrate post war economy. First vital step towards national reconstruction. Set the foundation of the Japanese economic miracle from which other factors and policies built upon. Reflected USA’s willingness to act as the engine for world growth and recovery.
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USA’s favourable macro-economic policies towards Japan
USA retreated on its decision to break up the Zaibatsus which formed the bedrock of Japan’s industries in the late 1940s. • • • • • Facilitated an increase in trade volume by enabling Japanese goods to enter the US market easily. Significant since Japan could tap into the world’s largest consumer market for growth through increases in export revenue. most of which belonged to the USA. technology and infrastructure to Japan’s post war economy. Allowed Japan to keep its protectionist measures on steel(1950s) and automobiles(1960s). Japan also benefitted from the opening up of the American economy following GAT talks which cut 73% of non agricultural tariffs by the 1960s. • This reflected USA’s willingness to turn a blind eye to the Zaibatsus’ war crimes as they felt economic recovery took precedence in light of the Cold War. • Keiretsus could lend the much needed expertise. This also illustrates USA tolerance of its allies preferential systems. Enabled Japanese infant industries to develop from a secured market position by preventing the crowding in and flooding in effect to become dominant global market players which acted as engines for Japan’s economic growth. • The former Zaibatsus were the fulcrum of Japan’s prewar economy and hence were instrumental in ensuring it health. Reflected USA’s willingness to act as the engine for world growth and recovery. therefore accelerating its recovery. • Japan’s prostrate economy did not have to start from scratch which enabled it to get back on its feet quickly. They were now reintegrated as Keiretsus. • Demilitarisation and US-Japan military alignment .
US provided protection by stationing air and naval bases in islands such as Okinawa. • Enabled US to project is military might into SEA. therefore creating a stable political sphere. • The security arrangement also ensured that the communist threat never reached Japan’s shores. • Government had a larger fiscal budget. • Moreover. enabling them to become key global market players by giving them an artificial competitive advantage. thereby creating a large efficient workforce to power Japan’s economic growth. Due to their dominance. export led growth became the backbone of Japan’s economic success. thus able to effectively create a capitalist developmental state which required constant and costly intervention. • Funding was crucial in nurturing infant industries and accelerated its growth. • Allowed Japan to channel 99% of its GDP into the civilian economy. manpower could be concentrated into the various pinpointed industrial sectors. • The government also artificially suppressed the Yen by pegging 360 Yen to 1 USD.As part of the 1951 San Francisco Treaty. Reasons for success− Domestic influences Capitalist developmental state The Ministry of International Trade and Industry(MITI) pinpointed and subsidized favoured industries such as steel in the 1950s and automobiles in the 1960s. . thereby helping to contain the threat of communism. Japan had to demilitarize. • Privileged economic development over the military as illustrated by the Yoshida Doctrine.
therefore fuelling overseas demand for Japanese made products. At the same time an undervalued exchange rate protects the domestic market since foreign imports are priced less competitively as compared to local ones and hence have a lower demand. Stable government also hinged on US financial aid and favourable macro economic policies which the LDP capitalized on to further economic recovery which enabled them to gain legitimacy. there was little partisan politics that could potentially hinder Japan’s long term economic growth. . many of which the benefits could be reaped only in the long run.• • This made Japan’s exports more cost competitive. The success experienced in the export industry powered Japan’s economic growth. • The stable political sphere ensured continuity of Japan’s economic policies. • • • Workforce and culture in Japan The Japanese worked on average 2097 hours annually in 1986 as compared to 1828 hours that the Americans clocked in. Artificially kept the level of competition low. Japan’s competitive currency devaluation hinged on USA’s willingness to accept asymmetrical benefits as it adopted the locomotive theory. • • • • Stable government The ruling Liberal Democratic Party stayed in power from 1955 to 1993. In addition. due to their entrenchment. The consistent economic centralization and planning hence ensured a viable and successful capitalist developmental state. This created a huge imbalance of trade which allowed Japan to run a chronic trade surplus. Each Japanese firm had its own total quality management unit.
with 4 periods of recession. • Enabled Japanese goods to flood into international markets and crowd out local producers. • • Thrift was embedded into Japanese culture.37% in the 1990s. • The efficient workforce further enhanced the success of the capitalist developmental state by injecting more dynamism into the pinpointed industrial sectors. • Causes led to Consequences Japan’s depression refers to the more than 10 years of stagnation and lackluster growth of an average 0. thereby contributing to the Japanese economic miracle. Enabled the government to maintain a capitalist developmental state since it had ample funds for costly intervention. • This translates to large export revenue which powered Japan’s economic growth.• Work ethic of high efficiency and productivity. This gave state aligned banks such as the Bank of Japan extra funds to invest into economic development. • As such. Policies in production . • They defined the frontier of productivity. Japan also boasts of high savings rates of up to 20% in 1973. Japanese goods were competitive in both cost and differentiation. enabling quality products to be manufactured quickly and cheaper.
thereby contributing to a lack of dynamism and stagnation in the Japanese economy. Toyota) which became dominant international firms. from the 90s. the BOJ continued extending loans to bankrupt companies due to political business nexus. Moreover. Due to their dominance. This is seen from the BOJ’s $2.MITI targeted favoured industries and transformed them into world leaders in exports. The amount of nonperforming loans to the private sector is estimated at $1. export led growth became the backbone of Japan’s economic success. the comparative advantage of these industries was long eroded. This capital was than well invested into expansion of operations. • However. • • • This is significant as BOJ’s loans injected much needed capital into Japan’s infant industries. • • Policies in finance The Bank of Japan constantly intervened in the financial sector by extending loans to companies. Created a favourable business environment which fuelled the entrepreneurial spirit. Analyse how this was successful initially However.8 billion dollar loan to Sony to fund its takeover of Columbia Pictures. the government failed to give attention to industries such as software and aerospace that would be the boom sector of the 1990s. It was a myopic approach to just concentrate economic resources on a few industries and not diversify.77 trillion. • This illustrates the detrimental effects of an overreliance on government economic directions as the government is also susceptible to oversight. thereby fuelled the development of companies(Sony. .
Analyse how this was successful initially The Japanese government continued these practices well into the 1990s by erecting protectionist measures to protect its domestic economy and uncompetitive industries. Need to embrace free market competition which would inject dynamism into the Japanese economy. Protectionist business relics lingered on past the point where they continued to be essential. • • • Interventionist habits . This can be seen from their artificial suppression of Yen’s value(360 Yen to 1USD). capital was displaced from healthy business to “zombie” corporations that would otherwise expire in the free market. • This is extremely detrimental to the Japanese economy as it gave industries little impetus to innovate and increase their efficiency since they enjoyed a sheltered market position. these bad loans meant that there was a lack of funds to finance new loans to profitable industries which could become the engines for Japan’s growth and economic recovery. • Policies in trade and investment The Japanese government followed anti competitive trade practices. Failure to resolve bad debt has weakened the overall health of the financial system and stymied economic recovery.• • • As such. In the long run. The loans artificially kept these non performing companies afloat. this means that large portions of the Japanese economy not only failed to measure up to the standards of the best worldwide competitors but fall far behind them. Hence.
Economic miracle: Organic and sustainable economic growth that is brought about by natural free market forces. . • These funds were effective as they repaired Japan’s damaged infrastructure and further developed it which helped Japan’s economic recovery take off. The economy needed a complete restructuring and not stimulus packages. It would also be one that is unsustainable in the long run. Hence. Failed to adequately address the economic depression. the Japanese government continued to introduce Keynesian style stimulus packages to prime the pump for economic recovery but it resulted in a public debt of nearly 140% of Japan’s GDP by 2002. this facilitated the development of the export industry which became the backbone of Japan’s phenomenal economic growth. • • This reveals that the Japanese government’s spending was poorly invested. making it extremely difficult to reform. World class infrastructure created the foundation from which industries could thrive since they enjoyed external economies of scale. The government’s extensive intervention was ultimately detrimental and ineffective as it exacerbates Japan’s current economic problems. Japanese economic model was too entrenched. • • However. • • • Really an economic miracle? Capitalist illusion: Façade of great economic prosperity that appears to be driven by free market forces but is actually artificially propped up by interventionist influences.The Japanese government introduced Keynesian style stimulus packages which pumped funds into developing Japan’s infrastructure and the overall macro economy.
.Structure Japanese economic miracle was artificially engineered by the US and Japanese government. *Two para each(use the macro themes of the causes) Economic depression revealed that the Japanese economic model was ultimately unsustainable as it lacked the dynamism of free market forces.
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