Stages of Japanese Post-war Economic Growth - Case Study Example

Introduction Japan lost its industrial capa and economic status after the World War II, as the war also seemed to have ended the country's super power position in the world. However, to the world's astonishment, the Japanese were able to quickly lead the economy to the tracks of recovery and growth. Not only that the country's economy recovered from the disasters caused by the war and regained its economic status, but also its growth exceeded from the level experienced during the pre-war period. This elaborates the rapid economic development in Japan after the year 1945 in the context of various phases it experienced while travelling to the unprecedented levels of growth. Rapid Growth Of Japanese Economy After 1945 Japanese economic growth in the post-war period is considered to be an example for countries struggling against their economic disasters. It has also been termed as a 'miracle' owing to the spectacular effort demonstrated on the part of a nation that had just suffered from a devastating war, yet that leaped rapidly towards the renowned economic boom. Seldon elaborates this point as, "the miracle was that a country, which had lost a war and lacked raw materials, had attained such a high level of economic growth in such a short period" (273). It is true because in the backlash of the Second World War, the country had experienced desolation not only in economic terms, but also in humanitarian terms. This is what makes the post-war economic recovery and growth of Japanese economy exceptionally miraculous. This distinguished economic boom, although, did not take place in Japan all of a sudden. There happen to be several factors behind it and the growth passed through different phases before it could reach a level that is still considered a miracle in itself. Teranishi suggests that Japanese economic growth after the year 1945 took place in three distinct phases. The economy recovered and stabilised from the war-led downturn during the first period from 1946 to1950, proceeded from recovery to growth between 1951-55 and finally landed in the 'High Growth Era' from 1955 through 1972 (137). Hence, this paper will peep into the Japanese economy after the year 1945 in the light of the major phases through which it proceeded to such remarkable growth. Economic Recovery Phase: 1946-1950 The first phase implying the recovery of Japanese economy from the adverse effects of World War II started soon after the year 1945. Teranishi propounds that in the wake of the Second War, the Japanese economy confronted with an arrant economic disaster in the form of declining GNP, mounting inflationary pressures, and collapsing production. However, soon after the downturn in the year 1946, the economy caught the track of recovery. In 1948, the inflation was cut down significantly and production was steadily improved. This recovery and stabilisation period lasted during 1945-50 (139). This period is crucial in the study of the rapid growth of Japanese economy in the post-war era because this phase started a couple of years after the war. Also, a study of these years' economic activity suggests major changes made to the industrial structure that impacted on its growth. Japan was fortunate in the sense that although it had lost its economic and industrial vivacity as a consequence of the World War II, yet its efficient and effective human resource was still there to bring the country out of the disaster caused due to war. Seldon propounds that, "it was not that Japan was building from Scratch True, industry and the industrial cities had been devastated. But there existed large resources of well-educated manpower with a strong determination to survive" (271). The country's human resource played a great role in lifting the country from economic downturn to the recovery period. Seldon illuminates that the "'long-term achievement was to steer the pre-war economy in new directions move slowly away from cotton to heavy industry such as iron, steel, shipbuilding, and chemical production" (272). No doubt, the steps taken by the government to industrialise the Japanese economy and turn it from a cotton-based to a technological one happens to be the success encountered during this phase. When the country entered into the technological era, the production level expanded opening way for more exports. Transition Phase: 1951-1955 The recovery period that lasted until the year 1950 was successful enough to curb the inflationary pressures as well as restore the production level nearly to the pre-war period. In this period, industries were strengthened by means of demilitarisation and amendments to the prevailing labour laws. The keiretsu i.e., the Japanese main bank system was established bolstering the firms' and managers' association with banks. Hence, this paved way for industrial growth, as firms were able to gain enough funds from banks for long-term investments. The changes to Labour laws and the demilitarisation process were also crucial for establishing the control of mangers in the corporate sector (Teranishi, 145). This period significantly laid the foundations for the upcoming economic growth experienced in the country. With an ample availability of bank funds and the transformation of laws in a way more suitable to industries, the Japanese entrepreneurs made heavy long-term investments that paved way for speedy industrial development. High Growth Phase: 1958-1973 This period marks the history with astonishing uplift in the Japanese economy that placed the country in the row of highly industrialised nations. Weinstein and Ito mention that, "from the mid-1950s until 1973, Japan grew at a rate comparable to that of the East Asian economies today" (205). Rightfully, in this era, the Japanese economy rose even above the level it used to be in the pre-war period. The grounds set in the recovery and transition phase led the country to experience an astounding economic development. The boom of Japanese economy from mid 50s to the early 70s was very well manifested in the growth of the manufacturing capabilities in the country. Not only that, the economic growth even rose above the pre-war level during the 1960s and this rapid growth lasted till the early 1970s. It is in this era that the Japanese economy grew by almost about 4 times as compared to the early post war years (Weinstein and Ito, 206). This means that during a period of just fifteen years, the economy rose by 4 times. Not only the production was enhanced, but the employment status also ameliorated along with the consistently rising GDP. Spencer argues that, "from the end of World War II through the mid-1960s Japan was creating an export economy sheltered behind a wall of protectionism and buoyed by a pattern of cooperation between government and industry that was designed to stimulate growth in jobs and GNP'" (155). It is said that the high growth era experienced in Japan during the 1960s was a consequence of the government's policy to cooperate with the industrial sector and protect major industries from foreign competitors by means of import restrictions. The government concentrated mainly on the expansion of production and exports so as to meliorate the country's GNP and enhance the level of employment. Besides the government efforts behind the Japanese economic growth, the efficacy and effectuality of private sector put into the industrial development cannot be ignored. Also, the Japanese industry grew mainly due to the timely implementation of plans and policies. It is therefore true to say that, "although growth in the Japanese economy has owed more to private enterprise than bureaucratic or government control, there have been industrial policies and plans which have been skilfully devised, coherent, and effective" (Seldon, 273). Japanese Economy: Post 1973 This phase in the Japanese economy was initiated by the oil crisis that took place in the year 1973. It also marks an important era in the context of drastic turns in the Japanese economy after 1945. Having experienced such a rapid boom, the economy slowed down for a while and then again took a giant leap in the 1980s. The high growth period experienced from mid 1950s to early 1970s slowed down during the oil crisis of 1973. At this point, the Japanese economy took a new turn in the form of eminent appreciation of yen against dollar to the extent that the country's GDP exceeded even that of the United States in the late 1980s. This rapid economic growth also led to significant changes in the industry. During the same period, Japanese economy experienced an asset price bubble that lasted till the first half of 1990s. When this bubble burst in the 1990s, the economy took a serious downturn (Weinstein and Ito, 207). Ever since then, the country has been struggling to bring its economy once again on the track of development it experienced during the 1960s and 70s. Conclusion This paper discusses the various stages of economic growth experienced in Japan after the year 1945. The events that took place in those eras, the steps taken by the government, changes to the legislation, transformation of industrial structure and effectiveness of industrial management and manpower specific to each period tend to have put a significant impact on the post war economic development in the country. Hence, the Japanese economy did not reach the high growth era all of a sudden, rather it passed several stages that turned the country's economic and industrial direction considerably. Works Cited Sachs, Jeffrey and Teranishi, Juro, Economic Recovery, Growth and Policies: 'Gradualism' In The Japanese Context, Economic Policy, 1994, 9(19): 137-153 Seldon, Anthony (ed.). Government & Economies in the Postwar World: Economic Policies & Comparative Performance 1945-85. Florence, USA: Routledge, 1991 Spencer, Edson, Japan As Competitors, Foreign Policy, 1990, 78: 153-171 Weinstein, David and Ito, Takatoshi, Japan And The Asian Economies: A 'Miracle' In Transition, Brookings Paper On Economic Activity, 1996, 2: 205-272 Read More