Japan's Post-War Economic Growth: Key Factors

Theme II: The Development of the Global Economy

5. Japan's Post-War Economic Growth

I. Role of Government

• Growth-driven policies and focused leadership
  • The Liberal Democratic Party (LDP) mostly ruled after 1955.
  • A cohesive unity of bureaucrats and politicians made up competent policymakers focused on achieving economic development and self-reliance.
  • Tight policy coordination was known as the "Iron Triangle."
  • The Yoshida Doctrine was implemented in the early 1950s.
  • Ikeda's Income Doubling Plan was introduced in the early 1960s.
  • Sato's Three Non-Nuclear Principles were established in the early 1970s.
• Heavy government involvement in the free market
  • The Ministry of International Trade and Industry (MITI) decided, charted, and planned Japan's industrial and economic development.
  • Promoted sunrise industries by restructuring the economy towards capital-intensive, high-technology, and export-driven production.
  • Cheap loans were provided through the Bank of Japan (BOJ); the discount rate for credit was 1-2% below market rates.
  • Protected key industries by imposing import restrictions on European cars during the 1950s to protect Nissan and Toyota.
  • Import controls were implemented in the 1960s on competitive American technology, such as IBM.

II. Role of Firms & Socio-Cultural Factors

• Huge and inefficient zaibatsu were reconstituted into keiretsu, which promoted interlocking ownership between firms, banks, and suppliers.
• Japanese firms continued to adapt and innovate their production methods.
• The Just-In-Time (JIT)/Kanban system was efficient and produced at higher rates of 33% with 27% fewer defects than US firms, and 55% faster with 38% fewer defects than European firms.
• The Japanese workforce was educated, hardworking, and adaptable.
• Lifetime employment reduced unemployment rates, seniority pay built loyalty, and enterprise unions were harmonious.
• High household savings formed a huge reservoir of bank credit and funds for capital investment.

III. External Factors

• US aid and assistance built the platform necessary for growth
  • The Reverse Course Policy
  • The US Occupation dismantled Japanese war structures and introduced economic, educational, and land reforms.
  • Japan was used as a logistical base for the procurement of military supplies.
  • Boosted industrial production by 84% in 1950.
  • The economy grew 9% per year.
  • The US became the chief provider of military protection.
  • Under various treaties, Japan was freed from large expenditures on defense, committing only 1-2% of its GNP.
  • Allowed relatively free access to US markets while tolerating Japanese protectionism.
• Economic context of the Golden Age of Capitalism