lecture 09 postwar recovery, 1945-1949
TRANSCRIPT
No.9 Postwar Recovery, 1945-49
Economic Development of Japan
Postwar Recovery 1945-49
• The Japanese economy collapsed due to
input shortage. Inflation surged. Living
standards plummeted.
• The US occupied Japan and forced
democratization and demilitarization
(but later partly reversed).
• Subsidies and US aid supported the war-torn economy.
• The priority production system, based on economic
planning, contributed to output recovery (1947-48).
• Inflation was ended by Dodge Line stabilization (1949).
Army General
Douglas MacArthur,
head of GHQ
Coal
PowerShipping
Fertilizer
TextileSteel
Other
132 bil yen(3.9% ofGDP)
Mil yen % of GDP
1946 9,011 1.9%
1947 22,511 1.7%
1948 62,499 2.3%
1949 170,213 5.0%
1950 60,161 1.5%
1951 30,261 0.6%
1952 27,000 0.4%
0
500
1000
1500
2000
2500
3000
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
Mi l l i on USD
Imports
Exports
US aid
Korean Wardemand
Price Gap Subsidies
Fukkin Loan Balance, Mar. 1949
US Aid and Korean War Boom
Two Artificial
Supports 竹馬経済(Subsidies & US Aid)
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.
PP.148-50
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, etc).
JICA-JBIC:Report of the Stocktaking Work on the
Economic Development in Africa and the Asian Growth
Experience (May 2008), pp.14-15
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.
Establish “Industrialization Strategy” as a process, not just a document.
Measures must be consistent with the country’s institutional capability and executed under discipline and competition.
WAR
Alternative Ways to Stop Inflation
• Shock approach (austerity)
• Gradualism (use of subsidies & US aid)
• Conditional shock approach (PPS & Dodge Line)Prof. Arisawa and the Ministry of Commerce and Industry
PP.150-54
100
150
30 30
60
1934-36 1946
PPS
Shock approach
Industrial output
Steel Coal
Heavy oil (imported)
Other industries
(1)
(2)
(3) (3)
Priority Production System
30 mil tons
Hiromi Arisawa
Priority Production System 傾斜生産方式
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.
0
20
40
60
80
100
120
140
16019
36
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
Steel
Coal
All industry
(1936 = 100)
Source: Historical Statistics
of Japan, vol.2, 1988.
Industrial
Production
IndexPPS
Dodge Line
Korean War
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.
Democratization
• 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)
PP.154-56
Economic Reforms in Postwar JapanEdited 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 relation, distribution, equity (not for efficiency)
• Three-step deregulation—(i) reforms under control, 1945-50; (ii) integration, 1950s-mid 70s; (iii) financial deregulation & SOE privatization, 1980s
Markets need time to grow, or political resistance?
New Constitution 1947GHQ draft as the base; initial Japanese drafts, maintaining emperor’s sovereignty, were rejected.
• 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
PP.155-56
Article 9 Controversy
• Renunciation of war
• No possession of military forces
• Denial of the state’s right of belligerency
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.
PP.155-56
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
Alternative interpretations of Art.9--All war and military forces are prohibited, including for self-defense.--All war and military forces are prohibited, but Japan has self-defense rights.--War and military forces are permitted for the purpose of self-defense.
PM Abe (2014)
--The right of collective self-defense (SDF assisting US military under enemy attack) should be permitted (do so by cabinet decision, not by constitutional amendment)
Land Reform, 1946-50
1945 plan was rejected by GHQ (5ha max; only 11%
of land redistributed; “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.
Redistribution of land ownership to actual cultivators
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 (before WW2)
--Availability of large number of educated staff (unemployment
pressure)
Problem—economic inefficiency
--Average farm remained small: 1.09ha (1941)0.99ha (1955)
--More incentive to produce? Estimated productivity did not rise.
--Study shows no difference in rice farmers’ land productivity or
labor productivity (1939-41 data) :
Owned land (3,780kg/ha, 20kg/laborday)
Tenanted land (3,687kg/ha, 19.6kg/laborday)
Rural Life Quality Improvement Movement
• 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.
M. Mizuno and H. Sato, eds, Development in Rural Society: Rethinking Rural Development,
IDE-JETRO, 2008, in Japanese.