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Economic Development of Japan

Economic Development of Japan. Review. Topics for Review. Umesao Theory (evolutionary history) Edo—preparation for modernization Meiji—private sector dynamism Free market vs. industrial policy Coping with post-bubble recession Politics Discussion and Q&A.

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Economic Development of Japan

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  1. Economic Development of Japan Review

  2. Topics for Review • Umesao Theory (evolutionary history) • Edo—preparation for modernization • Meiji—private sector dynamism • Free market vs. industrial policy • Coping with post-bubble recession • Politics Discussion and Q&A

  3. Dr. Tadao Umesao’s View of the World Eurasian Continent Russia The Meditterra-nean and IslamicStates WesternEurope (UK) Dry Area China Japan India

  4. Evolution of Peripheral Society Interaction between Internal and External Forces Foreignsystems Period of internalization & stability Base society Period of adjustment & rapid change Failed adjustment:social instability, economic crisis, foreign dominance, etc. External stimuli Failed adjustment

  5. PP.16-17 II. Samurai’s Rule III. Modern-ization I. Emperor’s Rule IV. Postwar 1603 X WAR 1867 Rapid recovery and growth NARA Centralization MEIJI Westernization,industrialization,militarilization EDO Tokugawa Shogunate KAMAKURAMUROMACHISENGOKU Jinshin War × 671 HEIAN Nobles,Decentralization Taika Reform × 645 Internal wars, dynamic & fluid society Peace, isolation, conservative class society Clan fights Hunting & gathering xxxx xxxx xxx WEST!!! Chinese culture &political system WEST: guns &Christianity US occupation1945-52 Rice Buddhism

  6. P.23 Edo: Pre-conditions for Industrial Take-off • Political unity and stability • Agricultural development and commercialization • Development of transportation and nationally unified markets • Rise of commerce, finance and wealthy merchant class • Rise of pre-modern manufacturing • Industrial promotion by local governments (policy capability) • High level of education (HRD)

  7. P.56 Japan’s economic growth was driven mainly by private dynamism while policy was also helpful Cumulative history, Edo achievements, national unity and nationalism Private-sector dynamism and entrepreneurship (primary force) Rapid industrialization esp. Meiji and post WW2 period Policy was generally successful despite criticisms:--Power monopoly by former Satsuma & Choshu politicians--Privatization scandal, 1881--Excessively pro-West--Unfair by today’s standard Policy support (supplementary)

  8. P.47 Rise and Fall of Merchants and Enterprises Q: Who were the main drivers of Meiji industrialization? A: All types of entrepreneurs including Edo gosho, Yokohama merchants, Meiji zaibatsu, and company boom millionaires. ► Survival game was severe: many entries, many exits ► Japan’s industrial revolution: from 1880s to 1900s ► Japan-China War,Japan-Russia War also accelerated industrialization

  9. Dynamic Business Leaders and Managers Yataro Iwasaki1835-1885 Tosa samurai; founder of Mitsubishi Zaibatsu Eiichi Shibusawa1840-1931 Super business coordinator who created 500 companies Takeo Yamanobe1851-1920 Super factory manager and founder of Osaka Spinning Company Rizaemon Minomura1821-1877 Super manager and reformer of Mitsui Zaibatsu Saihei Hirose1828-1914 Super manager of Sumitomo Zaibatsu and Besshi Copper Mine Tomoatsu Godai1836-1885 Satsuma samurai; super business coordinator for Kansai Area

  10. PP.65, 179-181 Monozukuri (Manufacturing) Spirit • Mono means “thing” and zukuri (tsukuri) means “making” in indigenous Japanese language. • It describes sincere attitude toward production with pride, skill and dedication. It is a way of pursuing innovation and perfection, often disregarding profit or balance sheet. • Many of Japan’s excellent manufacturing firms were founded by engineers full of monozukuri spirit. Akio Morita (Sony’s co-founder)1921-1999 Sakichi Toyota1867-1930 Konosuke Matsushita1894-1989 Soichiro Honda1906-1991

  11. “J-Model” vs. “Global Standard”

  12. PP.140-41 Origin of the Post-WW2 Japan System • Featuring long-term commitments and official intervention Government-led industrial drive, administrative guidance, subcontracting, lifetime employment, keiretsu, mainbanks, friendly trade unions, BOJ window guidance, etc. • Negative view—this system was installed artificially after 1937 to execute war. It continued to work reasonably well in the 1950s-60s, but it is now obsolete. • Positive view—advanced industrialization requires such features. Free markets do not generate high-tech or heavy industries. Japan needed such a system to develop.  This means laissez-faire policy supports light industries and simple processing only; to go further, developing countries need above features even today.

  13. Average Tariff RateCalculated as (tariff revenue)/(import value)

  14. Industrial Policies in Postwar Japan(From Prof. Akira Suehiro’s 2006 Slides) • The fiscal investment and loan program (FILP, p.165fn) promoted trade and industry until early 1960s • Loans by Japan Development Bank and Exim Bank was relatively small, but had two important effects --Catalyst for larger commercial bank loans --Information sharing between business and government • Cooperative policy formulation and implementation • The “return match game” and learning effect—firms could apply many times for JDB and SME loans  Japan’s IP contributed to development of the market mechanism rather than distorting the market.

  15. Figure 4 Mechanism of FLI and the Role of MITI and JDB Policy Implementation Fiscal Finance Policy Making Late 1950s - 1960s

  16. How to Cope with Post-Bubble Recession?

  17. Causes of the Banking Crisis, 1927Kamekichi Takahashi & Sunao Morigaki, History of Showa Financial Crisis, 1968. Fundamental causes (more important) • Internal problems in the banking system(kikan ginko) • Rescuing weak businesses generously withoutserious restructuring after the bubble burst. • The 1923 earthquake and exchange rate instability further weakened Japanese economy. Immediate causes • Political fights over the unsettled earthquake bills. • Minor misstatement by Finance Minister Kataoka.

  18. PP.162-65 Rationalization 合理化(1950s) Anti-rationalization negotiation, 1955 • Korean War inflation reduced Japan’s cost competitiveness, especially coal & steel. • Competitiveness was regained by investingin mass production and new technology.Industry must exit if uncompetitive (coal). • Funds: profits from the Korean War boom. • Tight macroeconomic policy under a fixedexchange rate to force rationalization. • 1956 Economic White Paper: “We are no longer in the postwar period”—the recovery phase is over, new sources of growth must be found. Anti-rationalization rally, 1961

  19. PP.211-212 Debate on Fiscal Stimuli, 1990s-Now • During the 1990s, large fiscal spending was used to stimulate the economy. But there was no strong recovery, while the government debt skyrocketed. • Some argued for even bigger stimuli; others said that would only worsen the situation. • PM Koizumi (2001-06) set limits on spending (infrastructure, welfare). • PM Aso (2008-) returned to big fiscal spending to combat recession. Government debt in % of GDP Bubble burst Abe Fukuda Koizumi Aso

  20. Full democracy Democratic institution(Form) Showa2 US rule 1960 Now LDP dominanceLack of policy debate 1945-51 ConstitutionLawsParliamentElectionCourt DemocratizationNew constitution Military rises 1931 Democracy movement, Party cabinet 1937 Defeat War Male suffrage 1925 Showa1 Taisho ConstitutionParliament 1889 Fascism 1937-45 Meiji Edo (Content) Political fights Pure dictatorship Reform vs conservatism, big vs small government, other policy debates Political competition

  21. Flexibility in Coalition Building, 1858-1881 Industrialization Fukoku Kyohei(rich country, strong military) Naichi Yusen(internal reforms first) Foreignexpedition Constitution Okubo (Satsuma)1830-1878 Parliament Kido (Choshu)1833-1877 Saigo (Satsuma)1827-1877 Kogi Yoron(democratization) Seikanron (Korean expedition plan) Itagaki (Tosa)1837-1919 Source: Banno (2007), edited by presenter.

  22. PP.130-32 Two-party Politics 1924-1932 Seiyukai statements:“Prof. Minobe’s theory denies the supreme dignity of Emperor. Just banning his books is not enough.”“Go, go, Japan, the leader of Asia, the vast land of Manchuria and Mongolia is waiting for you!!!” (election campaign song)”

  23. P.178 The 1955 Regime (LDP dominance) • The Liberal Democratic Party (LDP) formed in 1955, held power until now (except 1993-96). • Securing rural votes by subsidizing agriculture and building rural infrastructure (firmly established by PM Kakuei Tanaka 1972-74) • LDP has many factions and zoku-giin groups (politicians promoting subsidies in particular fields) • Opposition parties are too weak to challenge LDP’s rule. • Reform movement inside LDP Koizumi reform—how successful? Abe, Fukuda, Aso too weak LDP Factions & zoku-giin Other parties

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