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Japan: The Miracle Years From 1954 to 1971 Japan underwent a rapid economic growth that resulted in an increase of its GNP at market prices from 7831 billion yen in 1954 to 79307 billion yen in 1971. The enormous growth went hand in hand with growing government resources that were put to use to improve its education and health sectors. The case of Japan's success could be used as a recipe for other countries to replicate. Before we look at what aspects we can and cannot use let us look at some of the key economic and political factors that played a role in explaining Japan's economic success.
Post-war Japan had to be revived and with support of the US occupiers the Japanese government underwent a process in which it tried to create a holistic sustainable economic strategy. The strategy would not only have to succeed in kick-starting the economy. It should at the same time become a sustainable model that would ensure that sufficient foreign reserves were earned to compensate for its lack of natural resources. The model Japan chose was one in which the Government would closely work together with the corporate sector. By maintaining close contact and establish forums to exchange ideas, obtain inputs and coordinate actions the Government and the corporate sector were able to support each other's agendas.
Instead of allowing the markets do their thing, the Japanese government actively promoted selected economic clusters that would not only result in earning foreign reserves but also enhance the overall competiveness of the Japanese industry. Other key sources of success were Japan's political stability with one political party, LDP, running the democratic country for almost 54 years and its ability to focus on becoming an economic vibrant nation instead of being too much distracted by international politics (cold war).
Japan's revival came at a time when the world economy was growing rapidly and other countries such as the Philippines, China and Indonesia succeeded in wasting the window of opportunity that emerged in the 1950s and 1960s. Such a window of opportunity has only now returned for countries such as the Philippines and Indonesia (demographic dividend) but the times have changed in such a way that Japan's recipe for success only provides few areas of replication.
In a world in which membership to the WTO has become a necessity, where capital is moved from one country to another in a matter of seconds, where MNC's easily move a factory from one special economic zone to another, and where the experience of close ties between the business sector and the political elite (crony capitalism) has brought more disadvantages than advantages Japan's core success ingredients that could be replicated in the globalized world-economy are limited.
Many of Japan's successful policies would these days result in cases filled with the WTO and in case an EU member would do it Joaquín Almunia, European Commissioner for Competition, would have a field day in suing government approved/induced cartels and disbanding kereitsu's that controlled a disproportional size of the Japanese economy.
However a key lesson to be learned from Japan is that even though globalization has restricted government's 'freedom' to develop economic policies and protect its industries and jobs, the government's role continues to be pivotal. The Japanese government made considerable investment in the area of education, health, social security and infrastructure. Governments should undertake more efforts to copy Japan's situation where it is a prestige and honor for the best and brightest to work for the government. In such a situation the bureaucracy actually forms a real fourth power that would be better positioned to resist tendencies towards nepotism and populist short-term policies.
A strong bureaucracy is ever more necessary in a world in where the spikiness of the world economy provides more proof for Wallerstein's World System Theory. It helped Japan move from its dire post-war situation and its technocratic approach to internal economic challenges helped it to return to the core of the world-economy. For emerging economies the main lesson thus to be learned from Japan's miracle years (1954-1971) has been the importance of the establishment of an enlighthed meritocratic bureaucracy that sees itself as the facilitator of the transformation to more sustainable economic development.