Class 11 and class 12 (extra) japan’s economic development 2018

Long-term Historic View of Japan’s Economic Development 1.. Post-war Economic Recovery and Accelerated Growth 1945~69: A Closer Look at Its Specific Causes 1.. Long-term Historic View of

Table of Contents

I Pre-conditions for Modern Economic Development in Japan

II Long-term Historic View of Japan’s Economic Development

1 Long-term Economic Growth ~A Comparative View~

2 Cyclical Economic Growth Swings vis-à-vis Economic Events

Before WWII : 1885~96 Upswing, 1897~1903 Downswing,

1904~18 Upswing, 1919~28 Downswing and 1929~36 Upswing After WWII : 1945~56 Downswing, 1957~69 Upswing, 1970~75 Downswing and 1976~87 Upswing

Class 11 and Class 12 (Extra) Japan’s Economic Development

III Post-war Economic Recovery and Accelerated Growth (1945~69):

A Closer Look at Its Specific Causes

1 Specific Causes of Economic Recovery and Accelerated Growth

➢ 7 Causes

IV Japan’s Economic Development and Contributive Factors ~Implication

for Developing Countries~

1 Ad Hoc/Transient Factors

➢ 14 Factors

2 Basic Factors ~Factors of “Social Absorptive Capacity”~

➢ 8 Factors

Class 11 and Class 12 (Extra) Japan’s Economic Development

I Pre-conditions for Modern Economic Development

in Japan

State of Affairs before 1886

• Political and Economic Institutions

The class system dissolved in 1869 Introduction of modern taxation from “rice paid as tax”

to “money paid as tax” The central bank: namely, Bank of Japan was established in 1885

by Meiji Government.

• Human Resources

The literacy rate was 45% for male and 15% for female in 1868.The public education

started in 1872 and the enrollment ratio was as high as in UK by 1900 High moral human resources as corruption-free political leaders and entrepreneurs.

• Social/Economic Indirect Capital

The road network between Edo (Tokyo) and 200 regions (local clans) was developed, the sea transportation networks of Japan Sea coast and Pacific Ocean coast as well The rice

irrigation system covered all over Japan Telecommunication services started in 1870, postal services in 1871, and railway services in 1872.

I Pre-conditions for Modern Economic Development

in Japan

State of Affairs before 1886

• Agriculture Sector

Agri-sector occupied 72% of total population → Supply sources of labor to modern industrial sector The domestic agri-technologies developed The average annual growth rate was 1.7% from 1878 to

1885 20% of agri-products were traded in the market→ Development of merchandizing and

distribution The class system dissolution (1869) and liberalization of land trade (1872) → Free

movement of farmers (labor forces)

• Manufacturing Sector

The textile industries (cotton and silk production) emerged with domestic technological improvement

of European technologies→ e x Tomioka silk filature factory Nationalization of machinery and

metal industries, then their privatization The growth rate of the sector 3% on an average from 1878 through 1885.

• Commerce and Finance Sector

The commercial sector was fairly developed during Edo period → Merchants and bankers/brokers in

200 clan states Bank of Japan (1885)’s positive impact on finance and commerce Introduction of modern company systems; e x “limited company system” in 1899.

II Long-term Historic View of Japan’s Economic

Development

1 Long-term Economic Growth ~A Comparative View~

• Average growth rate of national income and Per Capita Income were 3.6% and 2.5%, respectively The highest growth rate among the then developed countries (see Table 1 next slide)

• The Japan’s Per Capita Income in 1886 was 60% of UK or 29% of USA in

1886 But in 1999, it jumped up to $35,715, while USA $34,049 and UK

$24,548

➢ Why the Japanese economic performance was that remarkable? It is said that the “Late-comer’s Advantage” as well as satisfactory pre-conditions for modern economic development, which are closely related to “Social

Absorptive Capacity” worked well for Japan’s successful economic

performance

Table 1 Long-term Economic Growth, Population Growth and Per Capita Income

Growth (International Comparison)

Japan 1885/89-1963/67 78 3.6 1.1 2.5

Canada 1870/74-1963/67 93 3.5 1.8 1.7

Sweden 1861/69-1963/67 100 3.2 0.6 2.6

Australia 1861/69-1963/67 100.5 3.2 2.2 1

Denmark 1965/69-1963/67 98 2.9 1 1.9

Norway 1865/69-1963/67 98 2.8 0.8 2

Italy 1895/99-1963/67 68 2.8 0.7 2.1

Germany 1850/59-1963/67 110.5 2.7 1 1.7

Netherlands 1860/70-1963/67 100.5 2.5 1.3 1.2

Switzerland 1910 -1963/67 55 2.3 0.8 1.5

France 1831/40-1963/67 128.5 2 0.3 1.7

Belgium 1900/04-1963/67 63 1.9 0.5 1.4

Annual Growth Rate

Note: G(Y) Economic Growth Rate, G(N) Population Growth Rate, G(Y/N) Per Capita Income Growth Rate

Source: Minami (2002)

II Long-term Historic View of Japan’s Economic

Development

2 Cyclical Economic Growth Swings vis-à-vis Economic Events

Before WW II (Figure 1 and Table 2)

• 1885-96 Upswing Period in Growth Rates

• 1897-1903 Downswing Period in Growth Rates

• 1904-18 Upswing Period in Growth Rates

• 1919-28 Downswing Period in Growth Rates

• 1929-36 Upswing Period in Growth Rates

➢ Economic events during each period above should be referred to the main text handout.

Figure 1 Japan’s Long-term Economic Growth

Table 2 Japan’s Economic Growth, Population Growth and Per Capita Income Growth

Period

Economic Growth Rate

Population Growth Rate

Per Capita Income Growth

Source: Minami (2002)

II Long-term Historic View of Japan’s Economic

Development

2 Cyclical Economic Growth Swings vis-à-vis Economic Events

After WW II (Figure 1 and Table 2 )

• 1945~1956 Downswing Period in Growth Rates ~Post-war Recovery Period~

▻ The expansionary policy employed to reconstruct the war-torn country:

“Priority Production System (1946)”, “Reconstruction Finance Bank (1947)” As a result, inflationary trend emerged.

▻ Dodge’s Line (Fiscal Retrenchment Policy & Tight Money Policy) → Inflation was controlled, yet production dropped and unemployment surged.

▻ Korean War (6/1950~6/1951): War demand saved Dodge’s Line problems.

▻ LARA, UNICEF, CARE, GARIOA/EROA and World Bank assistance.

▻ Economic Planning Agency was established ( 1955 ) “Five Year Economic Self-support Plan (1956-60)” in 1955, “New Long-range Economic Plan (1958-62)” in

1957 (Appendix: Japan’s Economic Dev Plans after W.W.II)

Table 3 Japan as Recipient ~Foreign Assistance to Japan~

Contents of Aid Period of Aid Total Amount of Aid in US$ (and

J¥)

In terms of Today's Price of Total Amount of Aid in US$ (and J¥):

An Estimate

LARA 1 Aid Foods, clothes, textile, medicine,

choes, soap, cotton and so on 1945 - 1956 $1.1 billion (J¥40.0 billion) $22 billion (J¥800 billion)

UNICEF 2 Aid Skim milk, raw coton and so on 1949 - 1964 $18 million (J¥6.5 billion) $360 million (J¥130 billion)

CARE 3 Aid Foods, clothes, the necessaries of

life, medicine and so on 1948 - 1955 $50 million (J¥18 billion) $1.0 billion (J¥360 billion)

GARIOA 4

The necessaries of life such as foods, fertilizer, medicine and so on

1946 -1951 $1.6 billion (J¥567.9 billion) $32 billion (J¥11.36 trillion)

EROA 5

Industrial raw materials and capital goods such as machines and equipment

1946 -1951 $286 million (J¥102.8 billion) $5.7 billion (J¥2.1 trillion)

World Bank

31 loan agreements for 34 infrastructural and industrial projects

1953 - 1966 $862.9 million (J¥311 billion) $17.3 billion (J¥6.2 trillion)

1 LARA stands for Licensed Agencies for Relief of Asia

2 UICEF stants for United Nations International Children's Emergency Fund

3 CARE stands for Cooperative for American Relief Everywhere

II Long-term Historic View of Japan’s Economic

Development

• 1957~69 Upswing Period in Growth Rates ~Accelerated Growth Period~

▻ Some 10% of annual growth rate throughout the period due to high investment ratio of 30% with imported technologies and equipment.

▻ Industrial promotion policy, import liberalization policy and export promotion policy resulted in export increase.

▻ Slow capital liberalization policy lasted from 1950 to 1964; concerns over

foreign capital invasion (FDI).

▻ JETRO was established in 1954 and exchange rate was kept at ¥360/$.

▻ Government administrative guidance on promotion of basic industries,

realignment of excessive competition among firms and so on.

▻ “Income Doubling Plan (1961-70)” was formulated in 1960.

▻ Acute labor shortage problem and inflationary trend sneaked in.

II Long-term Historic View of Japan’s Economic

Development

• 1970~75 Downswing Period in Growth Rates

▻ In 1970, US B/P situation was worsened and IMF system was collapsed

“Fixed exchange regime” was replaced by “Floating exchange regime”

▻ Japanese Yen was devalued from ¥360/$ to ¥308/$ in 1971

▻ Japanese government employed the easy money policy to avoid recession

▻ Japanese exports did not drop and excessive liquidity problem together with strong inflationary pressure surged

▻ The (first) oil crisis (1973) caused hyper-inflation in 1973-74 The tight money policy was exercised and inflation ceased, yet the economic activities slowed down, which in turn solved labor shortage problem

II Long-term Historic View of Japan’s Economic

Development

• 1976~87 Upswing Period in Growth Rates ~Steady Growth Period~

▻ The tight money policy ended in 1975 and the expansionary fiscal policy was introduced in 1977

▻ Exports did not drop The economy experienced steady growth rate of 3%

to 5% with stable prices and low unemployment rates

▻ In 1976, the current account of B/P turned into surplus and since then the surplus expanded Foreign exchange reserves increased

▻ The second Oil Crisis (1978/79) did not affect the above trend

▻ Government did not raise the Official Bank Rate at 2.5%, which lead to the entrance of “Bubble Economy”

III Post-war Economic Recovery (1945~56) and

Accelerated Growth (1957-69): A Closer Look at

Its Specific Causes

1 Specific Causes of Economic Recovery and Accelerated Growth

(1) Recovery Demand from War Damages

(2) Korean War Demand (1950 ~ 51)

(3) Post-war Democratization

(4) Expansionary Economic Policies

(5) Decrease in Defense Expenditure

(6) Imported New/Advanced Technologies and Equipment

(7) Full Employment Policy Pursued by Developed Countries

IV Japan’s Economic Development and Contributive

Factors ~Implications for Developing Countries~

1 Ad Hoc/Transient Factors

(1) Priority Production System, (2) Reconstruction Finance Bank, (3) Fiscal Retrenchment Policy and Tight Money Policy, (4) Expansionary Economic Policies (after Dodge’s Line), (5) Korean War’s Special Demand, (6) Foreign Assistance (from Emergency Assistance to Reconstruction Assistance), (7) Establishment of Economic Planning Agency and Three Development Plans, (8) Strategic Industries’ Promotion Policy, and Imports of Western Technologies and Equipment, (9) Industrial Protection Policy, (10) Import Liberalization Policy, (11) Foreign Capital Liberalization Policy, (12) Export Promotion Policy vis-à-vis Full Employment Policy by the West, (13) Japanese Government Administrative Guidance and (14) Democratization of Economic and Social Institutions.

IV Japan’s Economic Development and Contributive

Factors ~Implications for Developing Countries~

2 Basic Factors ~ Factors of “Social Absorptive Capacity” ~

(1) Disciplined Political Leaders

(2) Efficient and Effective Government Administration

(3) Entrepreneurs’ Positive Attitude toward Technologies & Equipment

(4) Quality Engineers

(5) Hard-working Laborers

(6) Fairly-developed Social/Economic Infrastructure

(7) Fairly-developed Financial System

(8) Fairly-developed Distribution System

These factors had been consolidated over a long period of time since 1886

Name of Plan Planning Period (FY) Objectives

Plan and (Result)

Growth Rate in % (annual average)

Unemployment Rate

in % (annual average)

Inflation Rate in % (annual average)

External Balance (Current Accounts) in the Final Year (US$

100 million)

Five Year Plan for Economic

Self-Support 1956-60 Self-support of the economy and full employment 4.9 (8.8) 1.0 (1.5) n.a (1.8) 0 (-0.1)

New Long-Range Economic

Plan 1958-62

Maximizationof growth, improvement of national living, and full employment 6.5 (9.7) n.a (1.3) n.a (3.6) 1.5 (-0.1)

Doubling National Income

Plan 1961-70

Maximizationof growth, improvement of national living, and full employment 7.8 (10.0) n.a (1.2) n.a (5.8) 1.8 (23.5)

Medium-Term Economic Plan 1964-68 Rectifying imbalances 8.1 (10.1) n.a (1.1) 2.5 (5.0) 0 (14.7)

Economic and Social

Development Plan 1967-71 Balanced and steady economic development 8.2 (9.8) n.a (1.3) 3.0 (5.7) 14.5 (63.2)

New Economic and Social

Development Plan 1970-75

Construction of admirable society through balanced economic growth 10.6 (5.1) n.a (1.9) 4.4 (10.9) 35 (1.3)

Basic Economic and Social

Plan 1973-77

Promotion of national welfare, and promotion of international cooperation 9.4 (3.5) n.a (2.1) 4.0 (12.8) 59 (140.0)

Economic Plan for the Second

Half of the 1970s 1976-80

Realization of a richer national life and stable development of Japan's economy 6.0 (4.5) 1.3 (2.1) 6.0 (6.4) 40 (-70.1)

Appendix: Japan’s Economic Development Plans after World War II

New Economic and Social

Shift to a satable growth path, enrichment of quality of life, contribution to the development of the

international economic community

(550)

Outlook and Guidelines of

Economy and Society in the

1980s

1983-90

Formation of peaceful and stable international relations, forming an economy and society full of vitality, ensuring a secure and affluent people's life

balance (337)

Economic Management

Reducing the massive external imbalance and contributing to a better world, creating diverse lifestyles and better quality of life, promationg balanced economic and social development nationwide

The ratio current account surplus

to GNP shall reach internationally harmoneous levels by the end of the plan period (1,259)

FiveYear Economic Plan

-Sharing a Better Quality of

Life around the

Globe-1992-96

Reforms towards a better quality of life, co-existing with the global community, establishing the foundation for development

balance (1,250 in FY 1994)

Social and Economic Plan for

Structural Reforms -Towards

a Vital Economy and Secure

Life-1995-2000

Creation ofa a free and enegetic society and economy, creation of a prosperous economy and society in which people can feel secure and pursue fuller lives,

participation in the management of the global community

3 (n.a.) 2.75 (n.a.) 0.75 (n.a.) Sufficiently significant contraction

(n.a.)