Transcript The Japanese Postwar Miracle - Gatton College of Business

The Japanese Postwar Miracle
Factors of Japanese Economic
Recovery After World War II
William Montgomery
Introduction
• In 1937, war broke out between Japan and
China
• Japan was unable to defeat China in direct
conflict and they realized this was due to
China’s support by Western nations
• Japan moved into French Indo-China to cut off
China’s connection to the allied powers
• This enraged the western nations
Intro (contd.)
• The United States froze Japanese assets and cut
them off from many natural resources
• In 1941 Japan retaliated by attack US military
bases in the Philippines and Pearl Harbor
• This placed Japan in direct combat with a country
that had nine times their industrial capacity
• After numerous battles in the Pacific, the US
dropped two atomic bombs on Hiroshima and
Nagasaki
• This essentially removed Japan from WWII
Reconstruction
• After WWII, the US led the allies in the
occupation and reconstruction of Japan
• General MacArthur and the Supreme Command
of Allied Powers led the reconstruction effort
• Japan was focused on catching up economically
with US and the European powers
• This was a unifying factor throughout the nation
Focuses During US Occupation and
Intervention
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Zaibatsu dissolution
Land Reform
Reformation of Tax System
Education Reform
Zaibatsu Dissolution
• Zaibatsu- group of affiliated companies loosely
arranged around a large bank
• The US considered these business
conglomerates to be monopolies and purely
anti-democratic
• Zaibatsu also had incredible political power
• US was worried about corruption within the
Japanese political realm
Zaibatsu Dissolution
• Complete dissolution was never achieved, but
enough were dissolved or reorganized that a
new corporate structure emerged: the
keiretsu.
• Main difference between keiretsu and
zaibatsu: keiretsu were ot family owned like
zaibatsu
• Keiretsu were incredibly efficient and helped
lead Japan’s economic recovery early on
Land Reform
• Aimed to reallocate wealth in rural Japan by
relieving farmers from the grips of landlords
• This helped to eliminate class structures based on
land ownership
• This allowed more people to own land and farm it
however they wanted, thus increasing the income
of this rural lower class.
• After this reform, these low income farmers
became loyal supporters of the ruling
conservative party, changing Japanese politics for
years to come
Reformation of Tax System
• MacArthur commissioned a team led by Carl
Shoup, an economist from the University of
Columbia to present a newly reformed tax system
• MacArthur’s only stipulation was that they don’t
use Japan as a “guinea pig” to test new and
radical theories in taxation
• Recommendations included: full integration of
the corporate and individual income taxes,
taxation of capital gains as regular income with a
full deduction for capital losses, and an inflation
adjustment for capital gains
Reformation of Tax System
• The group was also concerned with tax evasion
• Increased taxes on luxury goods, in some cases by
150%
• Reduced taxes at the highest level from 85% to
55%
• Most recommendations were accepted but some
were not.
• The new tax system implemented by Japan was
less fair than the one recommended, but far
more pro-growth for the economy as a whole
Education Reform
• SCAP attempted to remove all militaristic and
ultranationalistic teachers from the education system
• MacArthur sought to standardize the education system
across the nation as well as simplify the writing system
• Compulsory education at the elementary levels
resonated with the Japanese government while the
creation of education systems at the university levels
did not
• This led to a more highly educated nation as a whole
The Korean War
• Japan’s economy was still recovering at a sluggish
rate in 1949
• In 1950, the Korean War began
• During the first eight months of the Korean war,
direct procurement amounted to about three
percent of the gross national product and to
about one-third of Japan's current export trade
• This allowed Japan to drastically increase their
exports and exponentially increase profits gained
from these exports
The Korean War
• Wages of industrial workers also increased
• Wages for individuals in these fields increased by
20 percent with while the cost of living only
increased by 17 percent in this time
• The rise in industrial employment was rather
small, even though production recorded a sharp
increase. The result was that that the value of
output per worker increased nearly 20 percent
• This allowed businesses to amass huge profits in
these important wartime markets
Conclusion
• There were multiple factors that led to the
recovery of the Japanese Economy
• This placed them in a great position for their
meteoric economic growth in the 1960’s and
1970’s
• Everything seemed to fall into place at the
right time