Industrial Development: A Leading Force Behind Japan's Postwar Development
Japan History
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Abstract
Research Report
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Background
Significance
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Abstract
 


Japan is the worldís largest shipbuilder, producing more than 20 percent of its ships.  The ship displayed was built by the Kawasaki. Kawasaki and the shipbuilding industry were a major part of Japan's economic recovery since World War II.
 
 


Historical Background

According to old economistsí theories, a country must have natural resources and arable land in order to develop into an economic power.  These theories contend that economies deficient in these resources are due to fail. Some countries, however, have proven otherwise. Their economic power comes from technology developed to counter obstacles such as mountainous terrain, scarce arable land and poor weather.  Japan is certainly one of these countries.  Unable to depend solely on agriculture, they have developed techniques, procedures, and technology that transformed them into a world power by World War II.

Before and during the war, Japanese governmental, bureaucratic and industrial efforts were guided toward defeating the U.S. and expelling foreign (mainly western) influence in the Asia-Pacific theatre.  Their mission changed, however, when the war suddenly ended after U.S. atomic bombs struck the Japanese homeland at Nagasaki and Hiroshima.  With a devastated industrial base, government infrastructure and continuity, and defeated military, Japan, once the major power in the Asia-Pacific theatre, was on the brink of collapse.  In response, trying to advantage of their near and eventual defeat, the Soviet Union was moving through Manchuria and seeking to ensure their interests and ideology were preserved in the strategic region.  On the contrary, the U.S. wanted to guarantee that a capitalist economy and Western ideals triumphed.

Immediately, it became clear that whomever could assist Japan towards economic recovery would be successful instilling their respective values there.  Being affected in all aspects of its operations and routines, Japan was not capable of independently staging an economic recovery.  Already combating its lack of natural resources and arable lands, Japan turned to the U.S. to salvage their economy and proud way of life.  After losing most of its islands and territories in peace treaties and top (but imprisoned) financial advisors and entrepreneurs, Japan needed Americaís help in order to recover from near-economic disaster.

The Marshall Plan, by General George C. Marshall, was the U.S.í overarching policy aimed at rebuilding war-torn states susceptible to Soviet (communist) takeover and occupation.  The plan granted monetary relief, defense forces, and political, and economic advisors to the countries that were included in the relief plan. The planís mission sought to rebuild and stabilize Japan, along with Germany and Western Europe and turn them into allies.  Consequently, by the U.S. stabilizing these countries, the Soviet Union would be unable to spread communism.   Therefore, the U.S. employed the Great Crescent Theory of Containment that strived to stop communist expansion.  Millions of dollars in foreign aid were sent in order to rebuild Japanís infrastructure and cities, establish a democratic/capitalist based government and economy, and to protect the area from communist takeover.  The Japanese welcomed this aid and other fundamental change as they now desired capitalism and wanted few remnants of their countryís WWII system that failed and brought dishonor to Japan.

This aid was the foundation for Japanís economic recovery.  This report will focus on industrial development and other critical aspects of Japanís economic recovery and include analysis on their industrial renaissanceís short and long-term effects.

Research Report
 

Japanís industrial and subsequent economic recovery took off during the Korean War.  When the communist North Korea invaded the South, the U.S. turned its focus away from Japan and prioritized expelling the communists out of South Korea.  The U.S. and the United Nations deployed thousands of troops and supplies into South Korea and fought from 1950-53 to complete their mission.  To support the effort, Japan began to produce war materials such as tanks, jeeps, and other supplies.  Also, it served as a sanctuary for war-tired soldiers, staging grounds for reinforcement forces, and a repair depot for damaged and or malfunctioning equipment.  Most importantly, the development and implementation of such services flushed $930 million into Japanís economy.

This money formed the financial backbone for Japanís rapid economic recovery, bringing much needed foreign currency into the country (the Yen not yet respected or holding a trusted value) and allowing for further investment into common, but demanded industries.  The acquisition of U.S. capital led to Japanís industryís rapid resurrection.  The influx foreign capital positively effected many aspects of Japanese industry.  The first industrial component significantly effected was the iron and steel industries.  Due to U.S. repair orders, iron and steel were constantly in demand and consequently required immediate widespread production.  With such high demand for steel, Japan had to invest in the facilities and develop corporation infrastructures capable of meeting the demands.

To answer the problem, the Ministry of International Trade and Industry (MITI) reopened the legality of monopoly-driven conglomerates called keiretsu (descendant of the zaibatsu) that were capable of producing the demanded steel.  These enormous governmentally protected and subsidized, multifaceted keiretsu umbrellaed the Japanese recovery movement.  The keiretsu allowed the Japanese to consolidate their assets, leaving more financial resources for investment.  With such consolidation, the Japanese established a functional system that not only met the demands, but also with the means to expand and prosper while having the luxury to bypass financial practicality for aggressive behavior.

By the end of the war, the steel industry, with help from the new keiretsu, was well on the path for success.  Factories were purchasing new technology from the U.S. to further advance and modernize their systems and manufacturing capabilities.  For example, Kawasaki in 1954 opened the worldís most advanced steel-making facility. Kawasaki and the steel industry took the lead for Japanís industrial success.  Even after the war and decline in demand for repair parts and services for the U.S.í equipment, steel was needed and production continued to rise.  The Japanese were able to reallocate their steel into more specialized industries like shipbuilding and domestic appliances and automobile manufacturing.

The first to prosper was the shipbuilding industry.  In previously having one of the worldís largest shipbuilding industries (pre-World War II), Japanese laborers and engineers had the ability and competency to build great ships.  Now, with the influx of new capital and steel, Japanís shipbuilding industry resurrected and exploited a niche in the market that resulted in universal demand for their product.  Their niche: Oil Supertankers. Countries and oil companies had been trying to solve the costly problems related to the inefficiency of transporting oil.  In response, Japan built the worldís largest oil supertankers and used new welding technology in order to produce the best quality ships to date.  These oil supertankers were the most efficient oil tankers available and over the course of their life, saved oil companies millions of dollars.  As a result of exploiting the demand for efficient oil transportation, by the end of the decade, not only was Japanís steel industry the worldís second largest steel industry (behind only the U.S.) but also they had become the worldís largest shipbuilder, supplying with over 20% of its ships.

Also critical to Japanís economic revival was their ability to utilize domestic markets, monopolize them, and have their population of over 170 million only purchase Japanese manufactured products.  With the U.S. opening their markets to nearly anything that Japan could produce and Japan restricting imports from them in return, Japanese products had a monopoly at home.  The washing machines, televisions, and other electronics produced in Japan were purchased throughout the United States and more importantly, were the sole occupiers of the Japanese domestic markets.  The country was selling and exporting their products to other countries, while keeping their revenues at home by only buying their own products.  This allowed them to continue to reinvest in their industries and improve the quality and quantity of their products (eventually, the products were superior to their competition in both aspects).

The most critical part of Japanese industryís recovery was their continual successful technological improvement.  Throughout the decade and beyond, the U.S. would sell the Japanese the best technology available.  By investing in new technology and applying their own research and development programs to develop cutting edge manufacturing techniques, procedures, and technology, Japan was quickly becoming an economic giant.  The technology enabled the keiretsu to be immediately competitive and expand rapidly.  Their factories were built from scratch, and by utilizing the new technologies, were and have been able to surpass U.S. dinosaur factories in production efficiency and quality.  Furthermore, they continually invested and even over invested without the worries of bankruptcy.  The keiretsu received financial protection from the government who promised to bail them out during financial crisis.  With government protection, the keiretsu and businesses in general had thoughts solely on expansion and were willing to continue to aggressively invest in order to begin building a substantial market share without compromising their businessesí stability.

In addition, other factors significantly effected the Japanese industrial renaissance, including the automobile industryís development and minimal military spending.  Alongside the steel and shipbuilding industries, the automobile industry, although it took more time, accelerated to become among the worldís largest automobile manufacturers.  Companies like Honda and Toyota started to develop cheap and efficient cars that are now driven throughout the United States and other countries.  However, the automobile industry erupted in the 60ís and not during the initial recovery of Japan.

Also, although not directly related to industry, minimal military spending contributed to Japanís industrial recovery.  Since the war, Japan has never spent more than 1 percent of its GNP on military defense.  Their countryís forces have mainly stayed on the island as solely defense forces and Japan has not had to deal with the expense of deployments, wars, and other military costs during their critical years of recovery and redevelopment.  This enabled the government and investors to spend less on taxes and military operations and invest the saved capital into the economy.

In all, industry certainly contributed to Japanís recovery.  In conjunction with other efforts, industrial investment, development and production paved the way for Japanís economic revival.  By successfully taking foreign aid and investment, closing their domestic markets, and taking advantage of new technologies, Japan was able to resurrect from its near collapse and build an industrial base capable of thriving in the Twentieth Century.

Historical Significance

The miraculous economic recovery of Japan has left many short and long-term effects on Japan and the world.  First, it is important to consider the consequences if Japan hadnít recovered quickly or at all.  With the regionís stability in jeopardy, as exhibited in the CCPís takeover of China and North Koreaís invasion into the South, Japan was vulnerable to attacks as it demilitarized and its economy just started to recover.  Under such conditions, communist takeover of Japan was conceivable.  Communist regimes like China or the Soviet Union could have influenced the area in a similar capacity to that of the United States.  Consequently, Japan would have become communist.

Moreover, if its ideology reigned in the Japan, East Asia would have entirely fallen to communism.  There would have been no staging ground for U.S. forces in Korea, resulting in South Korea being surrounded by communist regimes and inevitably falling to communism.  Then, with no U.S. presence in the area, the same would have happened to Taiwan and the Philippines.  If these countries shared this fate, communism would not have been contained and the world would certainly have a different balance of power today.

Fortunately, history dictated events differently for Japan and Asia.  Japanís economic recovery has enabled the U.S. and now Japan to secure a substantial capitalist influence in East Asia.  Now, Japan has capitalist system and has developed into a world recognized economic power.  The Japanese have enjoyed an exceptional standard of living as the world has benefited from their cheap but reliable products.  Through proper market analysis, industries have found areas that are worth significant investment.  By taking opportunity where found and being aggressive in investment and development, Japan has developed one of the largest macro-economies in the world.  Most importantly, communist invasion is no longer a serious threat and capitalism now reigns in the region.

Unfortunately, though, their own policies, techniques and procedures used to invigorate the recovery movement were perhaps a contributor to Japanís current recession. The governmentís and keiretsuís policies have brought their current economy to a desperate and arguably unrecoverable debt.  With the keiretsu religiously over investing in expansion and production, their economy was left exposed to an economic drought.  Keiretsu were investing credit that they could not possibly honor.  Furthermore, no effective considerations were taken on what would happen if the economy were to experience a major recession and the government would have to compensate many keiretsu seeking bailout.  Such oversights and over investment have contributed to Japanís current economic recession, and unlike those experienced in the U.S. in recent decades, there may not be an immediate or even long term solution.

References

Bai Gao.  Economic Ideology and Japanese Industrial Policy 1931-1965.    Cambridge University Press, 1997.

Denison, Edward.  How Japanís Economy Grew So Fast: The Sources of Postwar Expansion. The Brookings Institution, 1976.

Freedman, Craig.  Economic Reform in Japan: Can the Japanese Change?    Edward Elgar Publishing, 2001.

Haitani, Kanji.  The Japanese Economic System.  Lexington Books, 1976

Smitka, Michael.  Japanese Economic History 1600-1900.  Washington and Lee University Press, 1998.

Web Resources

http://www.odci.gov/cia/publications/factbook/geos/ja.html
CIA  Japan  FactBook.  Contains important facts and figures about Japan on its political system, economy, terrain, and other aspects.

http://www.economist.com/world/asia/index.cfm :
Has current publications that have articles on Japan and its current economic problems.

http://www.history.navy.mil/photos/events/kowar/log-sup/japan.htm
Contains excellent introduction and images pertaining to Japan's logistical support to the U.S./U.N. during the Korean War.

http://www.indiana.edu/~japan/digest8.html
Offers analysis the future of Japan's economy in the 21st century.

http://www.japan-guide.com/e/e2124.html
Gives very good overview of the different periods in Japanese history, from the Nara Period to Postwar Japan.
 
 

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Edward A. Piasta