Transcript lec.9

Economic Development of Japan
No.9 Postwar Recovery, 1945-49
Postwar Recovery 1945-49
• The Japanese economy collapsed due to input
shortage. Inflation surged. Living standards
plummeted. Food was severely lacking.
• The US occupied Japan from 1945 to 1952 and
Army General
forced democratization and demilitarization
Douglas
(but later partly reversed).
MacArthur, head of
GHQ
• Subsidies and US aid supported the war-torn economy.
• The priority production system, using planning method,
contributed to output recovery (1947-48).
• Inflation was ended by Dodge Line stabilization (1949).
American soldiers in
occupied Japan
GHQ building in Hibiya,
around 1950
Two Artificial
Supports 竹馬経済
(Subsidies & US Aid)
US Aid and Korean War Boom
Mi l l i on U SD
3000
2500
Price Gap Subsidies
1946
1947
1948
1949
1950
1951
1952
Mil yen % of GDP
9,011
1.9%
22,511
1.7%
62,499
2.3%
170,213
5.0%
60,161
1.5%
30,261
0.6%
27,000
0.4%
Fukkin Loan Balance, Mar. 1949
Im po r t s
2000
Expo r t s
1500
Other
Coal
1000
US aid
132 bil yen
(3.9% of
GDP)
Ko r e an W ar
de m an d
500
1955
1954
1953
1952
1951
1950
1949
1948
1947
1946
0
Steel
Textile
Fertilize
r
Shipping
Power
PP.148-50
Basic Problems of Japan’s Economic
Reconstruction (1946) Saburo Okita, Yonosuke Goto, eds
• Long-term goals must be set for Japan’s recovery
and global industrial positioning.
• Concrete real-sector strategies to attain these goals,
sector by sector.
This report is a good example of Japan’s economic thinking,
also reflected in its current development and ODA strategies.
--Kyrgyzstan Report (Prof. Tatsuo Kaneda, 1992)
--JICA Vietnam Report (Prof. Shigeru Ishikawa, 1995)
--A new proposal for Africa (JICA-JBIC, May 2008)
It is very different from the “general framework” approach of
Western donors (governance, poverty reduction, health and
education, debt reduction, matching funds, etc).
JICA-JBIC：Report of the Stocktaking Work on the
Economic Development in Africa and the Asian Growth
Experience (May 2008), pp.14-15
Establish “Industrialization Strategy” as a process, not
just a document.
1. Identify desired vision, economic structure, and positioning
in global value chain.
2. Through public-private dialogue, discover growth-leading
industries for future.
3. Identify their constraints (infra, HRD, etc).
4. Devise measures to remove constraints and promote targeted
industries.
Measures must be consistent with the country’s institutional
capability and executed under discipline and competition.
Alternative Ways to Stop Inflation
PP.150-54
• Shock approach (austerity)
• Gradualism (use of subsidies & US aid)
Hiromi Arisawa
• Conditional shock approach (PPS & Dodge Line)
Prof. Arisawa and the Ministry of Commerce and Industry
150
Industrial output
Priority Production System
Heavy oil (imported)
100
60
WAR
Steel
PPS
30
1934-36
(1)
Shock approach
1946
30
(3)
30 mil tons
(2)
Coal
(3)
Other industries
Priority Production System 傾斜生産方式
(1936 = 100)
160
Dodge Line
140
120
Industrial
Production Index
PPS
100
80
Steel
60
Coal
40
All industry
20
1952
1951
1950
1948
1947
1946
1945
1944
1943
1942
1941
1940
1939
1938
1937
1936
1949
Korean War
0
Source: Historical Statistics
of Japan, vol.2, 1988.
HOWEVER--Yoichi Okita & Elvira Kurmanalieva “Was PPS a
Success?” GRIPS Research Report, Nov. 2006
• Virtuous circle between coal & steel production did not happen
(VAR analysis); imported heavy oil and materials were true
causes of recovery.
• PPS was successful only as a diplomatic tool to persuade US to
permit these imports.
Dodge Line Stabilization (1949)
• Washington sends Joseph Dodge, a US banker with strong belief
in free market and sound budget, to end inflation (after stopping
inflation in Germany).
• Super-balanced (surplus) budget—cut spending, end subsidies,
raise utility prices.
Fiscal balance (bil. yen):
-92.3 (1946), -103.9 (1947), -141.9 (1948), +156.9 (1949)
• Credit restraint—end fukkin loans.
• Unify and fix exchange rate at $1=360 yen.
• Prof. Carl Shoup’s tax reform—direct tax-based (income tax,
corporate taxes), strengthen local tax base, rationalize tax
collection.
Mr. Dodge
Prof. Shoup
Democratization
PP.154-56
• Demilitarization
• New Constitution based on human rights and
pacifism (1947)
• Tokyo Military Tribunal (1946-48)—execution and
imprisonment of war criminals
• Breaking up of zaibatsu (1946); later remerged as
keiretsu (with no holding company)
• New labor laws to protect workers’ rights (1945-47)
• Land reform (1946-)
• Women’s suffrage (1945)
Economic Reforms in Postwar Japan
Edited by Yutaka Kosai & Juro Teranishi, 1993
• Radical reforms were possible because of
- US occupation
- Wartime control that reduced the power & incentives of
zaibatsu and landlords
- General distrust in the market mechanism
- Foreign aid and Korean War boom (macro supports)
• Labor, land and zaibatsu reforms for changing power relations,
distribution, equity (not for efficiency).
• Three-step deregulation—(i) reforms under planning & US
occupation, 1945-50; (ii) global re-integration, 1950s-mid 70s;
(iii) financial deregulation & SOE privatization, 1980s.
 Markets need time to grow? Or strong political resistance to
slow down reforms?
New Constitution
PP.155-56
Promulgated Nov. 3, 1946; Enforced May 3, 1947
Initial Japanese drafts, maintaining emperor’s sovereignty, were
rejected by GHQ. Instead, the American draft served as the base.
• Natural law--social contract among people (preface).
• Sovereignty resides with the people.
• Emperor is the symbol of the state and people’s unity (without
political power).
• Basic human rights--not just freedom, but also guarantee of
minimum living standards.
• Pacifism (Article 9).
• Balance of power among legislature,
executive and judiciary.
Article 9 Controversy
PP.155-56
1) Aspiring sincerely to an international peace based on justice and
order, the Japanese people forever renounce war as a sovereign
right of the nation and the threat or use of force as means of
settling international disputes.
2) In order to accomplish the aim of the preceding paragraph, land,
sea, and air forces, as well as other war potential, will never be
maintained. The right of belligerency of the state will not be
recognized.
• Renunciation of war
• No possession of military forces
• Denial of the state’s right of belligerency
Self-Defense Forces Established in 1954
Interpretation of LDP Government (until 2009)
--Invasion is prohibited but self-defense is permitted.
--SDF is a minimal power and not military forces
About PM Abe (2014-2016)
--“Recently, security situations surrounding Japan have changed
significantly for worse.”
--The Right of Collective Self-defense should be permitted (SDF
to assist US forces under enemy attack), in addition to selfdefense.
--This policy was introduced by a cabinet decision (July 2014), not
by a constitutional amendment.
--In July 2015, parliament passed a bundle of laws to allow SDF to
go abroad (up to now, ad hoc laws were created for individual
operations in Iraq, S. Sudan, etc.)
--If PM Abe wins Upper House election (July 2016) and secure 2/3
of total seats, he can even amend the Constitution.
Land Reform, 1946-50
Redistribution of land ownership to actual cultivators
1945 plan was rejected by GHQ (5ha max covering
only 11% of land; “absentee landlord” definition ambiguous)
1946 plan adopted and accepted by GHQ
--All land above 1ha (4ha: Hokkaido) must be sold
--Land price is nominally fixed under high inflation
--Land buyers can pay in 30-year installments
--For remaining tenants, rents are frozen and monitored
Implementation (mainly 1947-48)
--Involving 6 million families (2 million were losers)
--Owned land increased from 54% (1941) to 91% (1955)
--Labor-intensive: 415,000 officials and volunteers mobilized
--Absentee landlord holdings: 80-90% transferred
--Other landlord holdings: 70-80% transferred
MacArthur: “most successful reform” politically and for equity.
Reasons for “success”
--Forced reform under US occupation (“landlords are evil”).
--Accurate data and village network for easy identification of
ownership and cultivators.
--Preparation by reform-minded officials (even before WW2).
--Availability of large number of unemployed but educated staff.
Problem—economic inefficiency
--Average farm remained small: 1.09ha (1941)0.99ha (1955).
--Incentive to produce? Estimated productivity did not rise.
--Study shows no difference in rice farmers’ land productivity or
labor productivity (1939-41 prewar data) :
Owned land (3,780kg/ha, 20kg/laborday)
Tenanted land (3,687kg/ha, 19.6kg/laborday)
Rural Life Quality Improvement Movement
M. Mizuno and H. Sato, eds, Development in Rural Society: Rethinking Rural Development,
IDE-JETRO, 2008, in Japanese.
• In 1948, GHQ ordered the Ministry of Agriculture to initiate
nationwide “Life Improvement & Dissemination Movement.”
• Many local governments (Yamaguchi, Kagoshima, etc) also
launched similar programs with enthusiasm.
• Official directives + grass-root village activities organized by
life improvement dissemination staff (=village housewives).
• Daily life improvement: cooking, nutrition, meals, clothing,
bedding, cleaning, washing, child raising, public morals,
weddings/funerals, superstition, feudal habits, etc.
• Staff training in Tokyo and major cities; universities and
research institutions providing information and techniques.
• Similarly, “New Life Improvement”, “Life without Mosquitoes
and Flies Movement,” etc. up to the 1950s and 1960s.