THE DEVELOPMENT OF THE

GLOBAL ECONOMY

JAPANS ECONOMIC MIRACLE:

REASONS FOR JAPANS ECONOMIC
SUCCESS AND ITS PROBLEMS
Part II: The Application
 How far do you agree that Japan's economic miracle was
based almost entirely on special favours it received from the
USA? (Nov 2005)
Definitions
Japans economic miracle
The high-speed average annual growth of 10% in
Japans real GNP from 1950 to 1973, which continued
to grow albeit at a slower pace in the 1980s, yet still
exceeding that of other developed economies in that era.
Special favours
Implies preferential treatment by the USA
With regards to economic and military aid
* Were these favours special?
Military aid and American defense guarantees
Economic recovery aid.
 Thesis Statement
To attribute Japans high-speed average annual growth of 10%
in Japans real GNP from 1950 to 1973 as based almost
entirely on assistance from the USA would be an
overgeneralization. The question requires an examination of
whether American aid, both military and economic, madea
crucial contribution to Japans economic miracle. However it
did so very much in tandem with the internal factors emerging
from Japan: its governments economic policies, resources, as
well as the work ethic and culture of its citizens. Therefore,
this essay disagrees that Japans economic miracle was based
almost entirely on special favours it received from the USA.
 Thesis Statement (contd)
The dynamic of this complex combination
functioned in the following way:

Role played by special favours from the USA

in interaction with
Role played by the Japanese governments domestic
policies
Exposition
(Same format as the last question, though with a
nuance at the conclusion)
A. Special favours from the USA and the role they
played in the Japanese economic miracle
B. Crucial role of the internal factors emerging from
Japan, to capitalize on the special favours
C. Are the favours really special?
Yet, in considering American foreign policy in the Cold
War, were the favours granted to Japan truly special, or
common to all American allies?
 C. Are these favours really special?
Demilitarization was also carried out in West Germany
West Germany, like Japan, was to be a key ally in the Containment
Policy
Military protection was like NATO to West Germany (Article V:
attack 1 = attack all) prevented Japanese necessity for defence
expenditure
Marshall Plan implemented in the West.
The USAs GATT negotiations, serving as the locomotive for world
growth, benefitted all its allies.
The USAs maintenance of the BWS fixed exchange rate benefitted all
its allies.
Conclusion
Same as Jun 02 question:
Impossible to suggest the almost
entirely judgment.
Reminder of the notion of how it
may also be erroneous to say the
favours were special to Japan.
Examine the causes and consequences of
Japans economic success up to 1991.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Introduction:

It is critical to recognize first and foremost Japans tremendous economic

recovery from its immediate postwar state to that of 1991, which warrants its
label as an economic miracle. Japan went from being a shattered economy in
1945, with merely $14.2b as its GNP in 1951, to a GNP of $1040b by 1980. By
the 1970s, Japans economy was quintupling in size every decade and ranked
second only to the USAs, at some 40% the size of Americas. Japans growth
was remarkable in the 1950s-70s, and it was during this period in which she
overtook all the Western European countries rapidly (Alternative ways of
referring to Japans economic miracle). This economic success would last until
the first signs of recession in 1990-1, when the miracle which was the Japanese
economy was described to have been a burst bubble, in that its success was
something of an illusion and a contributor to its own collapse. (Summarize!)
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Introduction:

In examining the causes and consequences of Japans economic success

up to 1991, we will argue that Japans apparent miracle was a result of a
convergence of both internal factors such as its workforce, its stable
government and policies, and its resources, as well as its external
factors, including economic and military aid received from the USA.
However, we must note that as a result of the so-called Japanese
economic miracle, several consequences arose, such as the
internationalization of the Yen, the generation of stiff competition for the
US economy, and trade friction with its competitors (primarily the US
and EU) over its unwillingness to give up import protectionism.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Introduction:

In the 1990s, however, Japan found itself in a looming recession. Its

weaknesses had been hidden by what seemed to be its past successes. In
fact, this essay argues that one important consequence of the Japanese
economic success was the heralding of its economic downturn by 1991.
The Japanese governments micromanaging of domestic production, and
excessive intervention in Japans trade policy contributed to an
unsustainably deteriorating economic situation, which in the 1990s
would see Japan undergo four recessions prior to 2002 as domestic
economic policies attempted to save the industrial sectors it had
excessively propped up to such great success in prior decades.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
A. Japans economic success was caused by international factors
(actually this should all be familiar ground for you)
1. Aid from the US
. The US provided Japan with monetary aid during her postwar years for
reconstruction (1945-1960s).
. The US occupation of Japan (1945-1952) led to a rebuilding of the nation
and the creation of a democratic state.
Statistics?
. The USA tolerated the protectionism practiced by the Japanese government.
Why? What examples?
. The US government, under the auspices of the Supreme Commander of the
Allied Powers (SCAP), provided economic direction to Japan, acting both
to advise and steer Japanese economics.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
A. Japans economic success was caused by international
factors
2. US economic policies in Japan
. Plan to dismantle subsidiaries of zaibatsu (economic
conglomerates) was held off. Why?
. Postwar claims to reparations were relinquished, replaced
instead with commercial treaties with countries such as the
Philippines.
. The Yen was pegged at a favourable 360 to 1 US dollar.
. US support was also vital: Insisted that Japan be admitted to
GATT as a temporary member despite British objections.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
A. Japans economic success was caused by international factors
3. The demilitarization of Japan
. Diversion of resource to economic growth.
. USA provided a security umbrella. Expl.
. The US set up airbases and naval bases (Yokosuka, Okinawa),
which allowed it to project a military influence in Asia. Why was
this important?
. Military hostilities during the Korean War (1950-1953) also
contributed to Japans economy: special procurements. What
are these?
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
B. The instrumental role played by domestic factors
1. Workforce/culture of the Japanese (familiar ground,
elaborate)
2. Stable government
3. Governmental policies (each require further explanation)
The Ministry of International Trade and Industry
Undervaluing of the Yen
Import Protectionism
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
C. Consequences of Japans economic success upon the
global economy
1. Internationalization of the Yen: What does it mean and what
are the implications?
2. Stiff competition against US products, especially in the
manufacturing sector: What are the details, and what is the
significance?
3. Trade friction with competitors: How does this actually affect
the global economy (finance/ trade)?
Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
D. The looming financial crisis of the 1990s
and beyond
* Theme: the methods used to prop up
Japans economic success by 1991 would be
heralding in a period of recession and growth
contraction
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
D. The looming financial crisis of the 1990s and beyond
1. The Japanese governments aid of industries such as steel and auto
manufacturing came at the cost of its neglect for other industries such as
chemical, plastics, aerospace, aircraft and software industries. In these,
the Japanese economy never gained dominance.
The software industry, which was one of the reasons for the 1990s economic boom
of the USA, was virtually neglected by the Japanese governments fixation with
only some favoured industrial sectors and the promising industries of the 1960s,
into which the government poured tremendous aid (subsidies and tax incentives).
This contributed to a great deal of rigidity in the Japanese economy as the
promising industries of the future were not as the government had predicted in
the past, and after pouring a great deal of resources in those favoured industrial
sectors, the Japanese government sought instead to keep them propped up.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
D. The looming financial crisis of the 1990s and beyond
2. Micromanagement of domestic production
By the late 1980s, the industrial sectors deemed promising by
MITI (in the 1960s) were now only just surviving on government
aid, as their comparative advantage had already dried up.
The Japanese governments continued intervention in favour of
these declining industries, created a lack of free-market
competition, led to a worsening of already existing inefficiencies
in the economy.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
D. The looming financial crisis of the 1990s and beyond
2. Micromanagement of domestic production (contd)
Such a phenomenon is evident within the construction,
agriculture and food industries:
The government intervened in the event of declining domestic
demand by coordinating a reduction of production, rather than
allowing market forces to force consolidation, or closure, of the
least competitive elements of these industries.
That is to say, governmental intervention artificially kept
alive the least competitive portions of these industries.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
D. The looming financial crisis of the 1990s and beyond
3. Intervention in international competition
The Japanese government traditionally increased trade
barriers throughout the 1960s-80s to foreign imports so as to
artificially reserve the domestic market for domestic firms.
By the 1980s, these practices were being used to protect
favoured industries which were becoming less competitive
as the global economy developed towards higher and
information technology (eg. software and
chemicals/pharmaceuticals) and into industrial sectors the
Japanese government had not pinpointed.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
D. The looming financial crisis of the 1990s and beyond
3. Intervention in international competition (contd)
Yet, the Japanese government had to protect the domestic business
which were suffering from a great deal of competition (especially from
economies like S.Korea, Taiwan, Singapore, etc).
These protectionist practices were politically attractive in the short
term as domestic businesses were seen to be kept in operation, and
unemployment was minimized. However in the long term, economic
repercussions were dire.
Capital was basically being moved from healthy businesses in Japan
towards zombie industries that without governmental aid would
not survive in the free market.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
D. The looming financial crisis of the 1990s and beyond
4. 1991 Heralding in Japans lost decade (the 1990s)
In 1986, Japan experienced rapid inflation in land prices and
equity, entering what would become known as a bubble
economy.
The rapid inflation in land prices and equities (ie. stock market
shares) happened because the Japanese economy was experiencing
what was believed to be a miracle, and confidence was so high
that it stimulated constant investment and demand for land
(primarily for economic developments, which include residential
developments) and investment in stocks, thus driving up prices.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
D. The looming financial crisis of the 1990s and beyond
4. 1991 Heralding in Japans lost decade (the 1990s) contd
The Bank of Japan pursued a policy that involved limiting
appreciation of the Yen, and increasing liquidity and money
supply. The liquidity was then invested in assets, increasing
asset values, leading to further inflation.
When the Bank of Japan between May 1989 and August
1990, fearing the rapid escalation in prices, saw to the surge
in interest rates, borrowing went into standstill. This led to a
plunge in asset prices, bursting the bubble and leading to a
serious recession.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Exposition
D. The looming financial crisis of the 1990s and beyond
4. 1991 Heralding in Japans lost decade (the 1990s) contd
This recession further contributed to more than 10 years of
stagnation and faltering growth from 1991 onwards, with
GDP growth averaging merely 0.37%, even experiencing
GDP contraction.
However, due to politics and business relationships, banks
were unwilling to cut back on loans. Many even extended
new loans to bankrupt businesses. The failure to resolve bad
debt led to an overall weakening of the financial system and
choked economic recovery.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Conclusion
Therefore, in terms of causes, the Japanese
economys success appears to have come from both
favourable external and domestic factors, with
consequences by the 1970s and 80s of trade friction
between Japan and her competitors like the US
and EU. All this trade friction led to the emergence
of many forms of protectionist measures by
Japans competitors against her, eroding the
liberal qualities of the international trading order.
 Examine the causes and consequences of Japans
economic success up to 1991. (AJC02)

Conclusion
Additionally, one important consequences of the success of
the Japanese economy was the masking of the inherent
problems of that Japanese economic miracle, inherent
problems which would eventually bear fruit in 1991 with
the heralding in of the decade of Japans economic
recession, as the bubble economy burst from its pre-
existing structural inefficiencies. The irony was, though,
that these structural inefficiencies had at first been the
domestic factors favourable to Japans economic success in
the 1970s and 80s.
Conclusion

Internal factors External factors

Capitalist Developmental State USAs direct financial aid to Japan

USAs favorable macro-economic

Stable Government
policies towards Japan

USAs inclusion of Japan into its anti-

Workforce and culture communist East Asian Security
Architecture
Conclusion
Keynesian styled Targeting
stimulus packages favored
industries
Interventionist
Habits by the Policies in
Japanese Production
government

Politics in
Policies in
Trade and
Investment Finance
Anti-competitive practices
Bank of Japan
Investment heavily
regulated