Post on 14-Jan-2016
description
Economic Development of Japan
Review
Topics for Review• Umesao Theory (evolutionary history)• Edo—preparation for modernization• Meiji—private sector dynamism• Free market vs. industrial policy • Coping with post-bubble recession• Politics
Discussion and Q&A
Dr. Tadao Umesao’s View of the World
WesternEurope (UK)
JapanDry Area
Russia
China
India
The Meditterra-nean and Islamic States
Eurasian Continent
Evolution of Peripheral Society Interaction between Internal and External Forces
External stimuli
Base society
Foreignsystems
Period of adjustment & rapid change
Period of internalization & stability
Failed adjustment:social instability, economic
crisis, foreign dominance, etc.
Failed adjustment
xxxx xxxx xxx
I. Emperor’s RuleII. Samurai’s Rule
X
III. Modern-ization
WAR
IV. Postwar
Clan fights
× 645
NARA
Centralization
HEIAN
Nobles,Decentralization
Internal wars,
dynamic & fluid society
Peace, isolation, conservative class society
EDO
Tokugawa Shogunate
KAMAKURAMUROMACHI
SENGOKU
1867
MEIJI
Westernization,
industrialization,
militarilization
Rapid recovery
and growth
Hunting & gathering
Taika Reform
Rice Chinese culture &political systemBuddhism
WEST: guns &Christianity
WEST!!! US occupation1945-52
1603
PP.16-17
× 671Jinshin War
Edo: Pre-conditions for Industrial Take-off• Political unity and stability• Agricultural development and commercialization• Development of transportation and nationally unified markets• Rise of commerce, finance and wealthy merchant class• Rise of pre-modern manufacturing• Industrial promotion by local governments (policy capability)• High level of education (HRD)
P.23
Cum
ulat
ive
hist
ory,
Edo
ach
ieve
men
ts,
nati
onal
uni
ty a
nd n
atio
nali
sm
Private-sector dynamism and entrepreneurship
(primary force)
Policy support(supplementary)
Japan’s economic growth was driven mainly by private dynamism while policy was also helpful
Policy was generally successful despite criticisms:--Power monopoly by former Satsuma & Choshu politicians--Privatization scandal, 1881--Excessively pro-West--Unfair by today’s standard
Rapid industrialization esp. Meiji and post WW2 period
P.56
Rise and Fall of Merchants and Enterprises
0
50
100
150
200
250
1849 1864 1875 1888 1902
Persons
Millionaires of Edo period
New millionaires of Late Edo
New millionairesin early Meiji
New millionaires in company boom period
Source: Computed from Miyamoto (1999), p.53. Each line shows how many ofthe new millionaires emerging each period survived in later periods.
Q: Who were the main drivers of Meiji industrialization?
A: All types of entrepreneurs including Edo gosho, Yokohama merchants, Meiji zaibatsu, and company boom millionaires.
► Survival game was severe: many entries, many exits
► Japan’s industrial revolution: from 1880s to 1900s
► Japan-China War,Japan-Russia War also accelerated industrialization
P.47
Dynamic Business Leaders and Managers
Yataro Iwasaki1835-1885
Tosa samurai; founder of Mitsubishi Zaibatsu
Eiichi Shibusawa1840-1931
Super business coordinator who created 500 companies
Tomoatsu Godai1836-1885
Satsuma samurai; super business coordinator for Kansai Area
Rizaemon Minomura1821-1877
Super manager and reformer of Mitsui Zaibatsu
Saihei Hirose1828-1914
Super manager of Sumitomo Zaibatsu and Besshi Copper Mine
Takeo Yamanobe1851-1920
Super factory manager and founder of Osaka Spinning Company
Monozukuri (Manufacturing)
Spirit• Mono means “thing” and zukuri (tsukuri) means “making” in
indigenous Japanese language.
• It describes sincere attitude toward production with pride, skill and dedication. It is a way of pursuing innovation and perfection, often disregarding profit or balance sheet.
• Many of Japan’s excellent manufacturing firms were founded by engineers full of monozukuri spirit.
PP.65, 179-181
Sakichi Toyota1867-1930
Konosuke Matsushita1894-1989
Soichiro Honda1906-1991
Akio Morita (Sony’s co-founder)1921-1999
“J-Model” vs. “Global Standard”
Industrial View Free Market View
Motivation Long-term firm growth (industrial engineers)
Quick result orientation (financial investors)
Skill and technology
Internal accumulation by permanent staff
Task-based contract or outsourcing
Concept of “firm”
Long-lasting community for achieving excellence
Restructure, buy or sell for best performance
Role of Government
Assist industries with technology, management, finance, etc.
Set laws and rules only; let private sector operate freely without meddling
Competition & integration
Raise competitiveness before integration; temporary official help
Open up and compete from the beginning; level playing fields
Origin of the Post-WW2 Japan System• Featuring long-term commitments and official intervention
Government-led industrial drive, administrative guidance, subcontracting, lifetime employment, keiretsu, mainbanks, friendly trade unions, BOJ window guidance, etc.
• Negative view—this system was installed artificially after 1937 to execute war. It continued to work reasonably well in the 1950s-60s, but it is now obsolete.
• Positive view—advanced industrialization requires such features. Free markets do not generate high-tech or heavy industries. Japan needed such a system to develop.
This means laissez-faire policy supports light industries and simple processing only; to go further, developing countries need above features even today.
PP.140-41
Average Tariff RateCalculated as (tariff revenue)/(import value)
0
5
10
15
20
25
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
All commodities Average of non-zero tariff commodities
1899 Restoration oftariff rights
%
Industrial Policies in Postwar Japan(From Prof. Akira Suehiro’s 2006 Slides)
• The fiscal investment and loan program (FILP, p.165fn) promoted trade and industry until early 1960s
• Loans by Japan Development Bank and Exim Bank was relatively small, but had two important effects--Catalyst for larger commercial bank loans
--Information sharing between business and government
• Cooperative policy formulation and implementation• The “return match game” and learning effect—firms co
uld apply many times for JDB and SME loans
Japan’s IP contributed to development of the market mechanism rather than distorting the market.
Figure 4 Mechanism of FLI and the Role of MITI and JDB
Policy Making
Policy Implementation
Fiscal Finance
technology advice managerial advice
Source: Drafted by Akira Suehiro
Individual Firmsapplied to fiscal finance
Industrial Council on SpecificIndustry or Target
Government Officers,Academicians,
Specialists
Business Associationsfor each industry
J apan DevelopmentBank
Department of HeavyIndustry
Ministry of InternationalTrade and Industry
(MITI)
Ministry of Finance(MOF)
Fiscal Fund Bureau
Late 1950s - 1960s
How to Cope with Post-Bubble Recession?
Inefficient firms & banks
Bad debt restructuring
Macro policy stance
Real sector policy
After WW1 Bubble (1920s)
Rescue with BOJ credit
Hide problem until 1927 crisis
Neutral? Heavy industry drive
After Korean War Bubble (1950s)
No rescue Not necessary Moderately tight
Rationalization (investment, technology)
After Heisei Bubble (1990s)
Rescue Jusen (real estate nonbanks)
Restructure after 1997-98 banking crisis
Fiscal activism & zero-interest rate policy
Not much
US-led global financial crisis (2008-09)
Rescue big US banks, auto makers, etc.
Effort begun in US
Global effort to ease macro policies
New energy policy?
Causes of the Banking Crisis, 1927Kamekichi Takahashi & Sunao Morigaki, History of Showa Financial Crisis, 1968.
Fundamental causes (more important)• Internal problems in the banking system
(kikan ginko)• Rescuing weak businesses generously without
serious restructuring after the bubble burst. • The 1923 earthquake and exchange rate instability furt
her weakened Japanese economy.
Immediate causes• Political fights over the unsettled earthquake bills.• Minor misstatement by Finance Minister Kataoka.
Rationalization 合理化 (1950s)
• Korean War inflation reduced Japan’s cost competitiveness, especially coal & steel.
• Competitiveness was regained by investingin mass production and new technology.Industry must exit if uncompetitive (coal).
• Funds: profits from the Korean War boom.• Tight macroeconomic policy under a fixed
exchange rate to force rationalization.• 1956 Economic White Paper: “We are no longer in the
postwar period”—the recovery phase is over, new sources of growth must be found.
PP.162-65
Anti-rationalization negotiation, 1955
Anti-rationalization rally, 1961
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
168%
Debate on Fiscal Stimuli, 1990s-Now• During the 1990s, large fiscal spending was used to stimulate
the economy. But there was no strong recovery, while the government debt skyrocketed.
• Some argued for even bigger stimuli; others said that would only worsen the situation.
PP.211-212
Government debt in % of GDP
Bubble burst
• PM Koizumi (2001-06) set limits on spending (infrastructure, welfare).
• PM Aso (2008-) returned to big fiscal spending to combat recession.
Koizumi Abe Fukuda Aso
Pure dictatorship
Full democracy
Democratic institution
(Form)
Political competition
ConstitutionLawsParliamentElectionCourt
Reform vs conservatism, big vs small government, other policy debates
EdoMeiji
Taisho
Fascism
ConstitutionParliament
Democracy movement,
Party cabinet
DemocratizationNew constitution
Showa2
War1937
1945-51 LDP dominanceLack of policy debate
Male suffrage
1960Now
US rule
Defeat
Showa1
1889
1925
1931Military rises
1937-45
(Content)Political fights
Flexibility in Coalition Building, 1858-1881Industrialization
Constitution
Parliament
ForeignexpeditionOkubo (Satsuma)
1830-1878
Kido (Choshu)1833-1877
Saigo (Satsuma)1827-1877
Itagaki (Tosa)1837-1919
Fukoku Kyohei (rich country, strong military)
Kogi Yoron (democratization)
Source: Banno (2007), edited by presenter.
Naichi Yusen(internal reforms first)
Seikanron (Korean expedition plan)
Two-party Politics 1924-1932 PP.130-32
Minsei Party 民政党 (Kenseikai until 1927)
Seiyukai 政友会(Estab. in 1900 by Hirobumi Ito)
Economy Small government, free market, fiscal austerity & industrial restructuring for return to gold
Big government, fiscal activism, local public works for securing votes
Foreign policy
Oppose militarism, protect Japan’s interest by diplomacy, promote disarmament
To attack Minsei Party, support military and fascism if necessary, even deny democracy
Remark Peace orientation is laudable, but stubborn deflation policy caused fascism to gain force
Economic recovery policy was welcomed, but its opportunism severely undermined democracy
Seiyukai statements:“Prof. Minobe’s theory denies the supreme dignity of Emperor. Just banning his books is not enough.”“Go, go, Japan, the leader of Asia, the vast land of Manchuria and Mongolia is waiting for you!!!” (election campaign song)”
The 1955 Regime (LDP dominance)• The Liberal Democratic Party (LDP) formed in 1955,
held power until now (except 1993-96).• Securing rural votes by subsidizing agriculture and bu
ilding rural infrastructure (firmly established by PM Kakuei Tanaka 1972-74)
• LDP has many factions and zoku-giin groups (politicians promoting subsidies in particular fields)
• Opposition parties are too weak to challenge LDP’s rule.
• Reform movement inside LDP Koizumi reform—how successful? Abe, Fukuda, Aso too weak
P.178
LDP
Factions & zoku-giin
Other parties