There is a reason people tell you to hold on to good times when it comes. They are never permanent and often stick with you for a very small period of time. The same is true for countries as well. The prosperity phase does not linger on for long, internal and sometimes external factors bring back the era of dilapidation. But, the mark of an actual champion is when he comes back swinging. This is where Japan carved its own trajectory.
Destruction after the world war
After the Meiji restoration of 1868, the Japanese were always fearful of colonialism knocking at their doors. So, they decided to counter the phenomenon by developing an imperial dream of their own. 77 years later, it led them towards ruins. Americans had chosen Japan as the first sight of testing Nuclear Bombs. Hiroshima and Nagasaki were done and dusted for all intents and purposes. But Japan was hardly dependent on two cities.
However, even the other cities were ruins. 65 per cent of all Tokyo residences had been destroyed by World War II. 40 per cent of Japanese urban areas were turned into rubble. Nearly 29 lakh Japanese had lost their lives. According to an estimate, Japan lost nearly 33 per cent of its total wealth during World War II. Add to that, Stalin’s annexation of the northern territories of Japan. It seemed as if Japanese identity was in for a toss and the country would balkanise. This is where the Japanese spirit turned it around.
The USA did not want Japan to be influenced by Communism
But hurdles were too many to come across. The biggest one was resurrecting the lost morale. The Japanese had surrendered to the US and now Uncle Sam was effectively its coloniser. But, unlike Britain, The United States’ intervention proved to be beneficial for Japan. Americans gave the Japanese their new Constitution. Its Article 9 stopped Japan from having its own military. The Japanese were assured that America and its allies would take care of its defence. And then suddenly, the Cold war kicked in.
Japan’s geography provided an opportunity to the USA. The USA wanted to use Japan as a base due to its location being close to Soviet Russia. Additionally, poor and hungry people unhappy with the current set-up have more proclivity to be influenced by Communism. That is why it became imperative for the USA to help Japan grow. As a result, the Japanese got an opportunity to improve their economic prospects. The USA started to provide aid to Japan and the Japanese paid the trust back with some well-intentioned changes.
Land reform was the first major change
Like most of the countries during the era, Japan was also a feudalistic country. Its land distribution was extremely non-uniform and unequal. Nearly half of Japanese land was owned by wealthy landowners who used to stay in cities while handing over their land for farming to tenants.
Post-war governments intervened with land reforms and sold lands to tenants. This was done in order to increase agricultural productivity that dried out due to destruction in World War II. The ownership of land provided tenants with a new kind of enthusiasm. Fuelled by farmer-friendly regulations and subsidies, farmers became a force to reckon with in post-war Japan. The ownership by erstwhile tenants became a reason for their later shift to the Industrial sector. Land ownership freed them from generations of labour and opened the gates of other sectors as well.
Keiretsu system was a game changer
But they could not get jobs until industries would mature. The biggest roadblock in Japan’s industrial resurrection was its industrial ownership system called Zaibatsu. Zaibatsus were oligarchs having command over Japan’s economy. They used to own a significant chunk of the industry by establishing various subsidiaries. The problem with it was that it was too centralised and did not provide much incentive for stakeholders to work hard. Zaibatsu was dissolved and a new system called Keiretsu was introduced.
Though on the face of it, Keiretsu was not much different from its predecessor, it provided more incentives to the factors of the economy like Banks, companies, factory owners, and distributors handling supply chains among others. The idea was simple until every agent in the economy would not contribute, the Japanese establishment did not think that they would be giving their best.
Win-win for all
Under the new system, a company is not owned by a single entity. Product owner companies have a stake in manufacturing companies and vice-versa. Similarly, Banks also have a stake in both these entities and finally, all of them have stakes in entities handling supply chain operations. Though it looks simple and frankly reeks of crony capitalism with a few more checks and balances, the Japanese utilised it for the nation’s development.
Since the banks used to have stakes in the companies, they used to provide easier loans to the companies at cheaper interest rates. Sometimes, the loans used to be over and above the final market valuation of the companies. Low interest helped massively in cost reduction. Additionally, these Companies used to order in bulk in order to save costs. Availability of workforce due to land reforms played a major role and acted as an incentive for companies to avail large loans. The return was certainly granted.
Effects of the changes
Companies started to produce more and cheaper prices meant that consumers were ready to buy more. Additionally, secure employment helped the Japanese to spend more. Manufacturing, Mining, Construction and Infrastructure became key engines of Japan’s economy. During the period from 1953-1965, Japan’s CAGR in GDP was 9 per cent. The change in employment pattern also reflected the dominance of the aforementioned sectors in Japan’s economic rise. Only 4 sectors were employing 41 per cent of Japanese. From generating 40 per cent of employment in 1955, agriculture was down to generating only 26 per cent of employment in 1965. It further declined and in the 21st century, only 5 per cent of Japanese are employed in farming.
The growth rate was so astounding that within a span of 10 years, Japan’s consumer market did not have much capacity to buy products. The Japanese government chalked out a two-pronged strategy to sort out the issue. In 1959, Japan introduced the “Income doubling plan” to increase Japan’s domestic consumption. Under it, PM Ikeda lowered interest rates and rapidly expanded government investment in Japan’s infrastructure, highways, high-speed railways, subways, airports, port facilities, dams, and the communications sector of the Japanese economy. It made both inter and intra-Japan transportation much cheaper and faster.
Exports helped Japan strengthen its economic fundamentals
Additionally, the United States provided Japan with favourable access and tariff reduction. Quickly, Japanese exports started catering to other export markets as well, most of them being American allies. During the 1960s, Japanese exports increased at the rate of 15 per cent on an annualised basis and it helped Japan become the third largest economy in the world in 1972. Steel, Motorcycles, Motorcars and textiles were key sectors in which foreign companies preferred Japanese imports.
It was on the back of a base built during the last two decades that the Japanese economy did not suffer setbacks during multiple oil crises in the 1970s. Later, the economy suffered more setbacks such as a decline in export demands during the 1980s. However, Japanese companies employed people for the long term which helped them to have a stable income, keeping the Japanese economy floating on the back of the domestic consumption effect. Even the Asian Financial crisis and 2008 recession did not have a significant impact on Japan. Companies like Toyota, Honda, SoftBank, Sony, and Nippon among others did not allow Japan’s economy to sink like that of the United States. Today, while the US is down to printing excess dollars and has nearly $30.49 trillion in debt, Japanese banks are providing cheaper loans to countries all around the world.
Apart from all the aforementioned technical reasons, the Japanese people’s spirit was also a big reason for Japan’s revival. If they were not honest and would have succumbed to their comfort zone after getting jobs ensuring lifetime security, Japan would have been nowhere on the global stage.
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