Economic Miracle in Japan - Essay Example

Do you think there will be an economic miracle in Japan ever again Explain your answer. Japan's catapult to world economic power in the latter half of the twentieth century had been phenomenal. Out of the ashes of Second World War, this tiny nation rose like the mythological phoenix and soared high in the sun-lit skies of prosperity for decades on end. A largely atavistic and feudalistic society till the second half of the nineteenth century, it quickly rose to a position of industrial preeminence by the beginning of the Second World War. While this phenomenon in itself had been unique and baffling, the way this country stood back on its feet after being utterly defeated in the War, and then took on a wing, rising to greater heights of economic achievement - is not only astonishing, it is almost a miracle. Although by definition, a miracle is inexplicable, the basic cause behind Japan's economic success can perhaps be explained in simple terms: the indomitable desire of the Japanese people to grow, their deeply persistent will to succeed at any cost. Between 1945 and 1970, the Japanese economy sustained an unprecedented annual growth rate of nearly ten percent on average (Kosai). But this in itself would seem like a minor detail in comparison to the stupendous driving force that compelled the Japanese people to race towards technological excellence and economic supremacy, most notably during 1960's. In the second-half of 1960's Japan reached a peak of economic progress, with an average of nearly 12% real annual growth rate. And for nearly 40 years surrounding this peak period, the country and its people subordinated all other goals in order to single-mindedly pursue their ambition of catching up with the U.S. economy (Crawford). In fact, their ambition knew no bounds; the aggressive strain so characteristic of Japanese men, which was employed for the purposes of destruction during the War, was rechannelled into more positive and constructive directions during the years of the economic boom. Consequently, Japan thrived, and even today, as well as for geneartions to come, represents a legendary story of success, an inspiration and exemplar for scores of developing nations in Asia and elsewhere. In fact, Japan should become an inspiration to itself. If this nation could pull it off once - this so-called economic miracle - it can pull it off again. All it needs is a push! While circumstances associated with Japan's days of glory may be at sharp variance from those of today, and while many of its past economic policies stand discredited today, and its culture too is changing fast - deep down, the spirit of this ancient nation remains as powerfully vital as ever. Above all, miracles have to do with spirit - of which Japan perhaps does not need too much before it again becomes a force to be reckoned with. Factors contributing to Japan's High Growth Rate: Although Japan's spectacular economic growth culminating towards the end of 1960's may initially give the impression of not being subject to rational analysis, in the same manner as a painting of supreme artisitry or as a deeply touching Zen haiku, it too is as much a cause-and-effect phenomenon as any other worldly matter. Japan is the purest example of what has become known as a producer economic state. But what lies behind this country's remarkable and record-breaking productivity levels Advances in knowledge, for one thing. Japan's economic success was achieved to a great extent on the basis of a superior technological know-how. The Japanese had the intellectual capacity to soak in vast amounts of knowledge necessary to stay at par with any other nation in our modern techonology-dominated world - and they put their intellects at the service of technology with a vengeance. They not only were able to ingeniously adopt the latest technologies, they actually adapted it to their own needs, and were moreover setting a number of innovative trends in a wide variety of technology-intensive industries. But even more than the share of knowledge, at least technically speaking, had been the share of increasing capital stock in the rapid growth of Japanese economy. According to the neoclassical growth theory, growth rates are the summation of increases in capital inputs, increases in labour inputs, and increases in productivity (Kanamori). In the Japan of 1950s and 60s these three took place in an exquisite symphony. And then come the other key factors that help boost any modern economy in general. In Japan's case, a heaviliy contributing factor had been the economies of scale made possible by expanding markets. There was also rapid expansion in exports due to the decline in export prices relative to those of other countries. The international environment was favourable to trade in many ways (Patrick & Rosovsky). Generally, Japan's economic miracle is seen in terms of soaring domestic investment and export growth between 1953 and 1970. Though not maybe as important as the aforementioned factors, there was also an increase in the education of the labour force, and this played a significant role in the growth of national income. Further, there was a better allocation of resources during this period, made possible mainly by the reduction of the proportion of the total labour supply that was inefficiently used in agriculture (Patrick & Rosovsky). Within the context of Japanse society, there were several structural factors that paved the way for this rapid and impressive economic growth. Government and private sector cooperation, good labour-management relations, and so on were instrumental in actualizing high productivity and growth rates (Nakamura). Government and governmental policies had a lion's share in direting the course of Japanese industry for many decades. For example, there were rapid increases in private investment made possible by the government's low-interest rate policy. (There were of course concomitant high savings among the people and high returns to capital.) The government helped stimulate private sector growth in a number of ways. Also, by instituting regulations and protectionism, the government proactively obviated potential economic crises. (Minami) Speaking of the government, as Japan wisely renounced its age-old martial culture in the post-Hiroshima and Nagasaki world, a sizeable chunk of government expenditure, which would have otherwise gone into military budget, was diverted to promote industrial productive capacity (Oshima). This is what may have set off a reverse domino effect, where instead of things falling one on another, they rise one on another in a sequential chain! Japan reached true heights of progress and prosperity. One can only wonder how would the world situation be today if all the nations renounced war and allocated a high percentage of their annual budgets to such causes as education and social development. There could be miracles everywhere! However, when looked at closely, Japanese economic miracle itself doesn't seem to be so much of a miracle as a rational and logical culmination of a wide variety of factors and contidtions that have been building up well before the World War II, in fact way back from the late nineteenth century when Japan embarked on the process of industrialization on a war-footing. Pre-war and Wartime legacy: Miracle Growth was the completion of a protracted historical process involving enhancing human capital, massive accumulation of physical capital including infrastructure and private manufacturing capacity, the importation and adaptation of foreign technology, and the creation of scale economies, which took decades and decades to realize. Dubbed a miracle, it is best seen as the reaping of a bountiful harvest whose seeds were painstakingly planted in the six decades between 1880 and 1938 (Mosk). However, the war brought Japan down on its knees. The World War had wiped out most of the gains Japan made during the previous decades, and Japan's postwar economy developed from what remained of an industrial infrastructure that suffered extensive damage. Not to be broken in spirit, though, Japan used a crisis situation as an opportunity. The industries developed during the war became, to a great extent, the major postwar industries. The swords were beaten into ploughshares, as it were. For example, factories that made machine guns turned to making sewing machines (Nakamura). Incidentally, sewing machine manufacture was likely the first major export industry developed after World War II. Millions of educated and well-disciplined former soldiers joined hands and joined the workforce - charged with the immense task of rebuilding Japan. Technology and skills acquired during the intense times of war subsequently wielded a tremendous influence on the postwar course of the Japanase economy. However, for a few years after the war, Japan had a technology level that is at subpar with many Western nations, and had a relatively low capital stock as well as low labour productivity. Also, as late as 1950, Japan had about 40% labour force still engaged in the agriculture sector (Patrick & Rosovsky). But all this was set to change dramatically. Japan's second period of economic development was about to begin. The Turning of the Tide: During its occupation of Japan after the war, which lasted until 1952, the United States put in considerable effort to revitalise Japanese economy and to create a democratic state. But in order to curb postwar inflation, America imposed certain stringent measures on the recuperating Japanese economy, such as suspending all state loans to industry, and abolishing all state subsidies. Unfortunately, such policies only weighed heavy on the Japanese economy slowing it down further. However, the tide turned with the advent of the Korean War, as the U.S. increased its military procurements from Japan, which equalled up to 7% of Japan's GNP during 1953 (Maciamo). This gave a much-needed boost to the Japanese economy. Large companies began to amass profits, and Japan's GDP began to pick up. And from then on, there was no stopping Japan - at least for a long time to come. Real gross domestic investment, private and public, increased by an average of 12.9% a year between 1952 and 1973, a most impressive feat and unparalleled in any peacetime, democratic nation. To mention but another figure, in a span of only five years, from 1965 to 1970, Japan actually doubled its industrial capital stock, another so-far unparallelled achievement (Patrick & Rovosky). Productivity-wise, there was a rise in the annual rate of increase in economic productivity from 7.4% in 1955-60, to 10.4% in 1965- 70. Such increases reflect technological progress, labour-capital substitution as well as advantages of scale. By 1970, Japan had overtaken all European economies, and reached to about 20% of the United States' GNP. In 1975, it was double that of the UK, and in 1980, it reached up to roughly 40% of the US. Thus, Japan's economic miracle continued for a long time indeed, officially terminating only in the early 1990s when a kind of staganation set in the economy. As we have seen, the reasons behind the meteoric rise of Japan in the 50's and through 60's include high rates of personal savings, a highly-disciplined labor force, innovative technology, effective government intervention in private-sector industries, and so on. With political democratisation has come economic liberalisation, bringing about a quick and effective transformation in the industrial organisation of Japan. Competition increased, and monopoly had lesser sway. But although the Japanese traditional vertical type business conglomerates, called zaibatsu, were largely dissolved in the years following the war, a new type of more dynamic business group called keiretsu became active. Keiretsu are sets of closely tied-up companies, and they played a crucial role in shaping Japanese economy. The keiretsu themselves were stable, but they created a business environment of extreme competition, at least in the sectors that targeted international markets. Japanese companies went to great lengths to keep up with one another through constant innovation (Crawford). Also tremendously instrumental in Japan's post-war resurgence was the Ministry of International Trade and Industry - the MITI; it coordinated between private industry and the very active Japanese government and helped bring about a balance between national production goals and private economic interests. In exercising industrial policy, MITI had to decide which industries to encourage and which to discourage, thereby actively promoting industries with better prospects and potential (Sato). By allocating public funds to certain private industries deemed to be growth-oriented, the government also encouraged private financial institutions to extend credit to these industries. MITI's establishment of the Japan Development Bank early on in the 50s provided the private sector with low-cost capital for long-term growth. Over 80% of Japan's Development Bank's finances went toward strategic industries such as shipbuilding, electric power, coal and steel production. Largely resulting from borrowing technology developed in the Western countries, the rate of technological progress remained high all through the period between mid 1950s to late 1960s,. Japanese firms entered into thousands of licensing agreements with foreign firms. Japan had capable people with managerial, organisational, scientific, and engineering skills in order to assimilate the best of European and American technology (Patrick & Rovosky). However Japan's unique expertise was at combining multiple borrowed technologies to create low-cost mass production systems. It was this kind of timely adaptation of foreign technology, along with substantial capital formation, that were very critical in bringing about Japan's fantastic economic growth rate (Minami). Japan imported techonology but it exported a variety of high-quality manufactured goods, most popular among them being automobiles. The volume of world trade tripled between 1955 and 1970, with a growth rate of 7.6%. The worldwide increase in this growth rate had an extremely beneficial effect on Japan's growth (Nakamura). The Nineties Decline: Japan continued with growth rates at 5% average in the 1970s and the 80s (still higher than the U.S.' 3.8% during that period), but finally getting to as low as 2.8% or less in years following 1993. Although Japan continued to enjoy high prosperity in 70's and 80's, the process of decline had already started in some tangible and other intangible ways. A series of economic crises jolted the Japanese economy during the early 70's, prominent among them being the oil crisis during which Japan experienced its first postwar decline in industrial production together with severe price inflation. However, advances in microcircuitry and semiconductors in the late 1970s and 1980s led to new growth industries in consumer electronics and computers. Japan became a key player in the worldwide electronics industry. "Made in Japan" electronic goods had become ubitquitous in many countries all over the world. Up until the late 1980s, Japan remained an economic colossus, with its GDP lagging only behind that of the United States. But over the decades, some structural incompetencies had been gradually building up in the Japanese economic system, mainly attributable to the policy of government intervention as executed by MITI. As a result, at the end of it all, Japan found itself mired in debt, even as its political leaders struggled to come to grips with the situation. Regardless, Japan is still a big rich nation, and can still muster up vast resources to find a way out of its current economic morass and gloom, as caused by higher levels of unemployment for example. The decline attributed to Japan's economy in the 1990s, though still ongoing, could very well turn out to be a passing phase. If this country could withstand and triumphantly emerge from the utter devastation of the Second World War, it can as victoriously emerge out of the ecomic slump it has been experiencing for quite some time now. True, the conditions today are different and less conducive for a dramatic resurgence; for instance, Japan had a baby boom in the aftermath of the war, which resulted in a major influx into its workforce during the 1960s, while, in stark contrast, an aging population is placing considerable strain on Japan's productivity in our own times. Thre are serious problems. Solutions are elusive. But the Japanese people have a formidable reputation to fight back. In a decade or so from now, India and China are all slated to become economic superpowers. And South Korea has emerged as a leading industrial force. Would these countries leave Japan behind at some point in the future Only time will tell, but if the past is any indication to go by, Japan will not accept defeat so easily. Who knows, Japan's third period of economic development can be just around the corner, and this could even surpass the previous two. References R. Crawtord (1998) Reinterpreting the Japanese Economic Miracle, Harvard Business Review, Jan/Feb. H. Kanamori (1986) The Japanese Economy: Present and Future, in L. Thurow, The Management Challenge Y Kosai ( 1986) The Era of High-Speed Growth R Minami (1986) The Economic Development of Japan T. Nakamura (1995) The Postwar Japanese Economy: Its Development a and Structure, 1937-1994 H. Oshima (1982) Reinterpreting Japan's Postwar Growth, Economic Development & Cultural Change 31 (1) K. Sato (1990) Indicative Planning in Japan, Comparative Economics 14. Mosk, Carl.(2004) "Japan, Industrialization and Economic Growth". EH.Net Encyclopedia, edited by Robert Whaples. Retrieved May 10, 2006, from http://eh.net/encyclopedia/article/mosk.japan.final Maciamo (2004) Japan's postwar occupation and the economic boom in the 1950's. 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