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 Dr. Tadao Umesao’s View of the World Eurasian Continent Russia The Western MeditterraEurope nean and (UK) Islamic States Dry Area China Japan India Evolution of Peripheral Society Interaction between Internal and External Forces Foreign systems Base society Period of internalization & stability Period of adjustment & rapid change Failed adjustment: social instability, economic crisis, foreign dominance, etc. External stimuli Failed adjustment I. Emperor’s Rule II. Samurai’s Rule 1603 X III. Modern -ization PP.16-17 IV. Postwar 1867 Rapid recovery and growth NARA Centraliz ation MEIJI EDO Jinshin War × 671 Taika Reform × 645 Clan fights HEIAN Nobles, Decentra lization KAMAKURA MUROMACHI SENGOKU Hunting & gathering Internal wars, dynamic & fluid society xxxx Chinese culture & Rice Buddhism political system Tokugawa Shogunate Peace, isolation, conserva tive class society Westerniz ation, industriali zation, militariliza tion xxxx WEST: guns & Christianity WAR xxx WEST!!! US occupation 1945-52 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) P.56 Cumulative history, Edo achievements, national unity and nationalism Japan’s economic growth was driven mainly by private dynamism while policy was also helpful Private-sector dynamism and entrepreneurship (primary force) Policy support (supplementary) 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 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. Persons 250 Millionaires of Edo period New millionaires in company boom period 200 New millionaires of Late Edo 150 ► Japan’s industrial revolution: from 1880s to 1900s New millionaires in early Meiji 100 50 0 1849 1864 1875 1888 ► Survival game was severe: many entries, many exits 1902 Source: Computed from Miyamoto (1999）, p.53. Each line shows how many of the new millionaires emerging each period survived in later periods. ► Japan-China War, Japan-Russia War also accelerated industrialization Dynamic Business Leaders and Managers Yataro Iwasaki 1835-1885 Eiichi Shibusawa 1840-1931 Tosa samurai; founder of Mitsubishi Zaibatsu Super business coordinator who created 500 companies Rizaemon Minomura 1821-1877 Takeo Yamanobe 1851-1920 Super manager and reformer of Mitsui Zaibatsu Super factory manager and founder of Osaka Spinning Company Saihei Hirose 1828-1914 Tomoatsu Godai 1836-1885 Super manager of Sumitomo Zaibatsu and Besshi Copper Mine Satsuma samurai; super business coordinator for Kansai Area 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. Sakichi Toyota 1867-1930 Konosuke Matsushita 1894-1989 Soichiro Honda 1906-1991 Akio Morita (Sony’s co-founder) 1921-1999 “J-Model” vs. “Global Standard” Industrial View Free Market View Motivation Long-term firm growth (industrial engineers) Quick result orientation (financial investors) Skill and technology Internal accumulation by permanent staff Task-based contract or outsourcing Concept of “firm” Long-lasting community for achieving excellence Restructure, buy or sell for best performance Role of Government Assist industries with Set laws and rules only; technology, management, let private sector operate finance, etc. freely without meddling Competition & integration Raise competitiveness before integration; temporary official help Open up and compete from the beginning; level playing fields 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. Average Tariff Rate Calculated as (tariff revenue)/(import value) 25 % 20 1899 Restoration of tariff rights 15 10 5 All commodities Average of non-zero tariff commodities 1990 1980 1970 1960 1950 1940 1930 1920 1910 1900 1890 1880 1870 0 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. Figure 4 Mechanism of FLI and the Role of MITI and JDB Policy Implementation Ministry of International Trade and Industry (MITI) Ministry of Finance (MOF) Fiscal Fund Bureau Department of Heavy Industry technology advice Japan Development Bank Fiscal Finance managerial advice Individual Firms applied to fiscal finance Policy Making Business Associations for each industry Government Officers, Academicians, Specialists Industrial Council on Specific Industry or Target Source: Drafted by Akira Suehiro Late 1950s - 1960s How to Cope with Post-Bubble Recession? Inefficient firms & banks Bad debt restructuring Macro policy stance After WW1 Bubble (1920s) Rescue with BOJ credit Hide problem until 1927 crisis Neutral? Heavy industry drive After Korean War Bubble (1950s) No rescue Not necessary Moderately tight Rationalizatio n (investment, technology) After Heisei Bubble (1990s) Rescue Jusen (real estate nonbanks) Restructure after 1997-98 banking crisis Fiscal activism Not much & zero-interest rate policy US-led global Rescue big US financial crisis banks, auto (2008-09) makers, etc. Effort begun in Global effort US to ease macro policies Real sector policy New energy policy? Causes of the Banking Crisis, 1927 Kamekichi 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 without serious 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. PP.162-65 Rationalization 合理化 (1950s) • Korean War inflation reduced Japan’s cost Anti-rationalization negotiation, 1955 competitiveness, especially coal & steel. • Competitiveness was regained by investing in mass production and new technology. Industry must exit if uncompetitive (coal). • Funds: profits from the Korean War boom. • Tight macroeconomic policy under a fixed Anti-rationalization rally, 1961 exchange 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. 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 180% 160% 140% 168% 120% Bubble burst 100% 80% 60% 40% 20% Koizumi Abe Fukuda Aso 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 0% Democratic institution (Form) Constitution Laws Parliament Election Court Full democracy US rule Showa2 1960 Now 1945-51 Democratization New constitution LDP dominance Lack of policy debate Military rises 1931 Democracy movement, Party cabinet 1937 Defeat War Male suffrage 1925 Showa1 Taisho Constitution 1889 Parliament Fascism 1937-45 Edo Pure dictatorship Meiji Political fights Reform vs conservatism, big vs small government, other policy debates (Content) Political competition Flexibility in Coalition Building, 1858-1881 Industrialization Fukoku Kyohei (rich country, strong military) Naichi Yusen (internal reforms first) Constitution Okubo (Satsuma) 1830-1878 Foreign expedition Parliament Kido (Choshu) 1833-1877 Saigo (Satsuma) 1827-1877 Seikanron (Korean expedition plan) Kogi Yoron (democratization) Itagaki (Tosa) 1837-1919 Source: Banno (2007), edited by presenter. Two-party Politics 1924-1932 PP.130-32 Minsei Party 民政党 Seiyukai 政友会 (Kenseikai until 1927) (Estab. in 1900 by Hirobumi Ito) Economy Small government, free market, fiscal austerity & industrial restructuring for return to gold Big government, fiscal activism, local public works for securing votes Foreign policy Oppose militarism, protect Japan’s interest by diplomacy, promote disarmament To attack Minsei Party, support military and fascism if necessary, even deny democracy Remark Peace orientation is laudable, but stubborn deflation policy caused fascism to gain force Economic recovery policy was welcomed, but its opportunism severely undermined democracy 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)” The 1955 Regime (LDP dominance) P.178 • 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 LDP to challenge LDP’s rule. • Reform movement inside LDP Factions & zoku-giin Koizumi reform—how successful? Other parties Abe, Fukuda, Aso too weak
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