World War II and Ministry of International Trade and Industry - Essay Example

WORLD HISTORY When World War II ended on August 15, 1945 the Japanese economy was in a sorry Statistics for 1946 indicate that industrialoutput had fallen by one third, while agricultural output had dropped nearly 60% of pre-war levels. This bleak situation was further exacerbated by the impending repatriation of nearly 7 million Japanese from abroad. The general consensus was that the Japanese economy was expected to descend further into hopelessness and despair (Diplomatic Blue Book). The situation I consider to have had the biggest effect on the rapid and success re-emergency of the Japanese economy as world-class after the end of World War II is the role played by the Ministry of International Trade and Industry {MITI} and its minister Ikeda Hayato who went on to become Prime Minister of Japan. The role of MITI in the ‘Japanese miracle’ is lauded by many scholars as “no other governmental regulation or organization had more economic impact than MITI.” MITI also gained special attention in Chalmers John’s 1982 book ‘MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975’ where he praised it as “the particular speed, form and consequences of Japanese economic growth are not intelligible without reference to the contributions of MITI.” Ikeda Hayato became Japanese Prime Minister in 1960 at a time when the economic efforts of MITI {in which he was very much involved} were nearing full bloom. He went on to support and supplement MITI policies. His tremendous involvement in the ‘Japanese miracle’ led Chalmers Johnson to refer to him as “the single most important individual architect of the Japanese economic miracle” in his 1982 book (Wikipedia.org). MITI, which was formed in 1949, started off with the ‘Policy Concerning Industrial Rationalization’ in 1950 that officially validated cooperation between the Japanese government and the Japanese private industry. An important aim of the Policy was to negate and overcome the effect of the deflationary regulations put in place by the ‘Supreme Commander of the Allied Powers’ {SCAP} immediately after World War II. The overall aim of the Policy was to stabilize the many industries of Japan and guide them towards the single target that envisaged national production goals and private economic interests (Wikipedia.org). The second major step taken by MITI was the passing of the ‘Foreign Capital Law’ in 1950 that disengaged and separated the import of technology from the import of merchandise. This Law gave MITI sole and full power to discuss, compromise and finalize agreements with foreign exporters for import of technology. By doing this, MITI was able to support and encourage those industries it considered as having the most likelihood of success in Japan. Its sole empowerment allowed MITI to import technology at low cost. As a result, Japanese industry grew rapidly, boosted by improved productivity brought about through imported equipment, management and standardization. The power of MITI grew rapidly. By August 1952, the ‘Economic Stabilization Board’ and ‘Foreign Exchange Control Board’ were terminated and MITI gained the right to control ‘all’ Japanese imports and it was also given direct empowerment over the foreign exchange budget (Wikipedia.org). The third major step taken by MITI in the resurgence of the post-war Japanese economy was the establishment of the ‘Japan Development Bank’ in 1951. This new bank was given immediate access to the ‘Fiscal Investment & Loan Plan’ {FILP} that held an enormous collection of personal and national savings that was reputed to be equal to four times the amount of savings in the world’s biggest commercial bank. The Japan Development Bank began using FILP funds to provide low cost capital to the Japanese private sector, promoting and encouraging long-term growth (Wikipedia.org). The massive funds of the FILP, made possible by the high Japanese savings rate and efficiently coordinated by the Japanese Postal Saving System, enabled the Japan Development Bank to spawn a high investment rate. Had not the Japanese saving rate been high and the savings well coordinated by FILP, Japan would have been forced to indulge in international borrowing to keep up its high investment rate (Homepage3nifty.com). The next stage of the ‘Japanese Miracle’ began in 1960 when Ikeda Hayato became Prime Minister of Japan. He continued and enhanced the economic system meticulously cultivated by MITI by strongly promoting a program of heavy industrialization. This program involved a new system of ‘over-loaning,’ under which the central Bank of Japan granted loans to city banks, enabling them to in turn give loans to industries and business houses (Wikipedia.org). The liberal loans came attached with negligible demand for payment – an aspect that spurred intense competition among industries that in turn lead to heavy concentration on Research and Development {R & D} activities, ultimately benefiting the overall Japanese industrial sector (Iun.edu). Due to the lack of capital in Japan during that period, industries over-borrowed beyond their net value, that in turn forced city banks to over-borrow from the Bank of Japan – a situation much to the liking of the latter, as it gained total control over the city banks (Wikipedia.org). The next stage of the ‘Japanese miracle’ took place when the Ikeda Administration relaxed the existing anti-monopoly laws {a lingering memory of SCAP control}, and passed the ‘Foreign Exchange Allocation Policy,’ a set of import regulations aimed at stopping local markets being inundated with foreign merchandise. These two moves, coming on the back of the revolutionary ‘over-loaning’ system, were instrumental in making the ‘Keiretsu’ re-appear on the economic scene (Wikipedia.org). The Keiretsu {vastly different from the pre-war ‘Zaibatsu’ family-owned groups of industries that was abolished in 1947}, comprised a group of companies who purchased each other’s shares, and did not offer shares to the public {thus protecting the member companies against stock market uncertainties} – all of which served to generate immediate profit to the member companies, letting them pay more attention to R & D activities and long-term prosperity goals (Iun.edu). The city banks, supported by the Bank of Japan, continued to support Japanese industries, particularly the Keiretsu, by granting loans easily and officially validating cross-share ownership in different industries. The Keiretsu took full advantage of the favorable economic conditions, organized resources capably, expanding by vertical and horizontal integration and quickly becoming competitive globally (Wikipedia.org), largely aided by the Japanese fixed exchange rate policy (Homepage3nifty.com). Aided by full cooperation from MITI {which used foreign exchange allocation to encourage local production and exports}, and its ability to cross-place shares within itself, the Keiretsu provided protection against foreign takeovers, thus keeping out foreign companies from the Japanese industrial sector. At this time, it was estimated that around 83% of Japan Development Bank’s finances were given as loans to crucial industries like shipbuilding, coal, steel and electric power (Wikipedia.org). The keeping out of foreign investment enabled the conversion of high local savings into high investment, also sheltering the Japanese economy from external international shocks like escalation in global interest rate (Homepage3nifty.com). The Keiretsu inculcated a new profit policy among Japanese business leaders whereby earning low profits in the short run was seen as something to be endured in the interest of achieving long-term growth and reaping long-term profits (Wikipedia.org). The next stage of the ‘Japanese miracle’ took place when the Ikeda Administration instituted an ambitious ‘income-doubling plan {whereby taxes and interest rates to private individuals were lowered so that they could spend more}, and swiftly increased government investment in infrastructure projects like airports, ports, dams, railways, subways and highways, as well as in the local communication sector (Wikipedia.org). The last stage of the ‘Japanese miracle’ began when the Ikeda Administration demonstrated the strength of its well-protected and booming domestic economy by establishing several allied foreign aid distribution agencies – a step that precipitated Japan’s global integration (Wikipedia.org). Japan astutely developed close ties of interdependence with developing nations, promoting industrialization in those countries not only by working together on economic and technical fronts, but also through by providing better market opportunities, wider direct foreign investment and other means (Diplomatic Blue Book). Japan’s global integration was enhanced when it joined the GATT in 1963 and the IMF and OECD in 1964 (Wikipedia.org) When ‘Japanese miracle’ architect Ikeda Hayato took office in 1960, he vowed to ‘double Japanese income in 10 years,’ meaning in 1970. By the time he left the Prime Minister’s office in 1964, Japan was well on the way to achieve his proclaimed goal with magnificent success - in actual fact, Japan achieved the ‘double income’ goal not in 10 years, but in just 7 years (Homepage3nifty.com). The ‘Japanese miracle’ was made possible by the strong propagation of MITI and Ikeda Hayato about having a uniform national identity, their emphasis on promotion of Japanese national interests under state planning (Iun.edu), and their insistence and perseverance on massive plant and equipment investment to march in tandem with technological advancements (Diplomatic Blue Book). The astonishing success of ‘Japanese miracle’ between the years 1949 and 1964 is well described by distinguished historical scholar Mikiso Hane as “the greatest years of prosperity Japan had seen since the Sun Goddess shut herself up behind a stone door to protest her brother Susano-o’s misbehavior” (Wikipedia.org). References used: “Economic Development of Japan after WWII.” Homepage3nifty.com. (N.d). “Japanese Post-War Economic Miracle.” Wikipedia.org. 2007. 8 Aug. 2007. “Postwar Economy & Politics.” Iun.edu. 2002. 8 Aug. 2007. “Postwar Japanese Diplomacy & Major Diplomatic Efforts by Japan in 1984.” Diplomatic Blue Book: Chapter 3. 1985. 8 Aug. 2007. Read More