Regional Fortunes JAPAN

Real per capita GNP growth ( )

GNP per capita (PPP) U.S. =100

Dissimilarity Index to measure economic restructuring DI == sum of positive or negative differences

Trade Statistics, 1995

Midcentury Handicaps n post-war recovery problems n weak natural resource base n weak understanding of Western culture and business practice n limited English language skills n pre-WWII reputation for shoddy goods n distance from major markets n lack of political & economic autonomy n shortages of capital & technology

Major Turning Points and Development Phases

Phase 1: Starts in late 19th C. n Meiji Restoration (1868) n decision to westernize n response to treaties with West n beginning of developmental state n study of foreign technology n experimented with direct state operation n state-private collaboration (zaibatsu)

Phase 2: late 1940s--early 1970s/very rapid growth n begins with serious economic difficulties n role of Korean War--special procurement –pumped $2.4 to $3.6B into economy –accounted for 60-70% of all exports –espec. textiles, steel, auto equipment n role of broader American support n “catch-up” essentially is completed at about the end of Fordist postwar period of rapid global economic growth

Phase 3: mid 1980s n slower growth and structural transformation n shift in economic goals n impact of oil crisis influenced by: –many Japanese industries were young with new equipment –Japanese industries mobilized technology to reduce costs –both capital and labor sacrifice –deficit--->depreciation of yen--> exports

Phase 4: Endaka n major revaluation of yen relative to dollar--60% appreciation in 10 months (mid 1985-mid 1986) n economic growth has slowed substantially, especially since 1991 n 1990s performance problems were triggered by bursting of “bubble economy” n debate re. how to re-start

Key Issue: What accounts for Japan’s economic success??? Kinds of explanations: n single factor explanations n synthetic (multifactor) perspectives

Bureaucratic Regulation (strong state) Perspective n best known example: –Chalmers Johnson, MITI and the Japanese Miracle. Look in Ravenhill, Japan, volume 1.

Thesis n Japanese government played a significant role as a developmental state n MITI (Ministry of International Trade and Industry) n development of infrastructure n identified and nourished targeted industries –Emphasis on capital and technology intensive industries

Techniques used to promote targeted industries n allocation of scarce foreign currency n direct subsidies n granting of licenses for foreign technology n accelerated investment depreciation n protection of domestic market via tariffs and NTBs n encouraging or approving cooperative behavior (cartels) to reduce competition

Computer Industry example( ) n 1. Protectionism –tariffs--25% in 1960 –import quotas--need a license Why do you need a foreign computer? –by % of all computers were Japanese (91% in gov’t institutions) –protectionism and foreign technology the case of IBM

2. Financial assistance n direct governmental financial assistance –1961 thru 1969 subsidies and tax benefits equalled 46% of total private sector investment -- plus loans n Japanese Electronic Computer Company –solves the rental problem –fraction rented grew: 4% in 1960, 46% 1962, 78% 1965

3. Cooperative research projects n used especially following IBM announcement of a new computer model

Why did the strategy work??? n not a strategy favored by Western economists--misallocation of resources n were structured in ways that maintained market competition--on the whole –did not create one-firm industries like France’s national champions n was a catch-up phase of development n a period of expanding global markets