New factories were equipped with the best modern machines, giving Japan an initial competitive advantage over the victor states, who now had older factories. As Japan's second period of economic development began, millions of former soldiers joined a well-disciplined and highly educated work force to rebuild Japan. Japan's colonies were lost as a result of World War II, but since then the Japanese had extended their economic influence throughout Asia and beyond. The United States' occupation of Japan —52 resulted in the rebuilding of the nation and the creation of a democratic nation.
US grant assistance, however, tapered off quickly in the mids.
A variety of United States-sponsored measures during the occupation, such as land reform, contributed to the economy's later performance by increasing competition. In particular, the post-war purge of industrial leaders allowed new talent to rise in the management of the nation's rebuilt industries. Finally, the economy benefited from foreign trade because it was able to expand exports rapidly enough to pay for imports of equipment and technology without falling into debt, as had a number of developing nations in the s.
A study, using the synthetic control method whereby Japan is compared to "synthetic Japan" a combination of which are similar to Japan but without the US alliance , found that the US alliance allowed Japan's GDP to "grow much faster" from In the wake of WWII, the Japanese citizenry was suffering from widespread exhaustion and despair from the war, known as " kyodatsu ," causing large-scale dejection and despondency.
These gifts referred to the bloodless democratic revolution from above ushered in by US forces that put an end to a socially debilitating war. One of the first and most significant economic reforms was the division and distribution of rural land to Japanese tenant farmers. Previously, property belonged to landlords and farmers worked on it in a feudal type system. Modern capitalist theory held that this feudal practice did not incentivize growth and the rural landlord class was dissolved.
The early post-war years were devoted to rebuilding lost industrial capacity: major investments were made in electric power, coal, steel, and chemicals. By the mids, production matched prewar levels. Released from the demands of military-dominated government, the economy not only recovered its lost momentum but also surpassed the growth rates of earlier periods.
Japan's highly acclaimed post-war education system contributed strongly to the modernizing process. The world's highest literacy rate and high education standards were major reasons for Japan's success in achieving a technologically advanced economy. Japanese schools also encouraged discipline, another benefit in forming an effective work force. The mids ushered in a new type of industrial development as the economy opened itself to international competition in some industries and developed heavy and chemical manufactures.
Whereas textiles and light manufactures maintained their profitability internationally, other products, such as automobiles, electronics, ships, and machine tools assumed new importance. Japan faced a severe economic challenge in the mids. The oil crisis shocked an economy that had become dependent on imported petroleum. Japan experienced its first post-war decline in industrial production, together with severe price inflation.
The recovery that followed the first oil crisis revived the optimism of most business leaders, but the maintenance of industrial growth in the face of high energy costs required shifts in the industrial structure.
Changing price conditions favored conservation and alternative sources of industrial energy. Although the investment costs were high, many energy-intensive industries successfully reduced their dependence on oil during the late s and s and enhanced their productivity. Advances in microcircuitry and semiconductors in the late s and s led to new growth industries in consumer electronics and computers, and to higher productivity in pre-established industries. The net result of these adjustments was to increase the energy efficiency of manufacturing and to expand knowledge-intensive industries.
The service industries expanded in an increasingly postindustrial economy. But these rates were remarkable in a world of expensive petroleum and in a nation of few natural resources. Despite more petroleum price increases in , the strength of the Japanese economy was apparent.
It expanded without the double-digit inflation that afflicted other industrial nations and that had bothered Japan itself after the first oil crisis in Japan experienced slower growth in the mids, but its demand -sustained economic boom of the late s revived many troubled industries. Complex economic and institutional factors affected Japan's post-war growth.
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First, the nation's prewar experience provided several important legacies. The Tokugawa period — bequeathed a vital commercial sector in burgeoning urban centers, a relatively well-educated elite although one with limited knowledge of European science , a sophisticated government bureaucracy , productive agriculture, a closely unified nation with highly developed financial and marketing systems, and a national infrastructure of roads.
The buildup of industry during the Meiji period to the point where Japan could vie for world power was an important prelude to post-war growth from to , and provided a pool of experienced labor. Second, and more important, was the level and quality of investment that persisted through the s.
Japanese businesses imported the latest technologies to develop the industrial base. As a latecomer to modernization , Japan was able to avoid some of the trial and error earlier needed by other nations to develop industrial processes. In the s and s, Japan improved its industrial base through licensing from the US, patent purchases, and imitation and improvement of foreign inventions.
In the s, industry stepped up its research and development , and many firms became famous for their innovations and creativity. Japan's labor force contributed significantly to economic growth, because of its availability and literacy, and also because of its reasonable wage demands. Before and immediately after World War II, the transfer of numerous agricultural workers to modern industry resulted in rising productivity and only moderate wage increases.
As population growth slowed and the nation became increasingly industrialized in the mids, wages rose significantly. However, labor union cooperation generally kept salary increases within the range of gains in productivity. High productivity growth played a key role in post-war economic growth. The highly skilled and educated labor force, extraordinary savings rates and accompanying levels of investment, and the low growth of Japan's labor force were major factors in the high rate of productivity growth. The nation also benefited from economies of scale.
Although medium-sized and small enterprises generated much of the nation's employment, large facilities were the most productive. Many industrial enterprises consolidated to form larger, more efficient units. Before World War II, large holding companies formed wealth groups, or zaibatsu , which dominated most industry. The zaibatsu were dissolved after the war, but keiretsu —large, modern industrial enterprise groupings—emerged.
The coordination of activities within these groupings and the integration of smaller subcontractors into the groups enhanced industrial efficiency.
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Japanese corporations developed strategies that contributed to their immense growth. Growth-oriented corporations that took chances competed successfully. Product diversification became an essential ingredient of the growth patterns of many keiretsu. Japanese companies added plant and human capacity ahead of demand.
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Seeking market share rather than quick profit was another powerful strategy. Finally, circumstances beyond Japan's direct control contributed to its success. International conflicts tended to stimulate the Japanese economy until the devastation at the end of World War II. In addition, benign treatment from the United States after World War II facilitated the nation's reconstruction and growth.
Japan's economic growth in the s and s was based on the rapid expansion of heavy manufacturing in such areas as automobiles, steel, shipbuilding, chemicals, and electronics. The secondary sector manufacturing, construction, and mining expanded to By the late s, however, the Japanese economy began to move away from heavy manufacturing toward a more service-oriented tertiary sector base.
During the s, jobs in wholesaling, retailing, finance, insurance, real estate, transportation, communications, and government grew rapidly, while secondary-sector employment remained stable. After a mild economic slump in the mids, Japan's economy began a period of expansion in that continued until it again entered a recessionary period in In , however, Japan's real GNP growth slowed to 1. Even industries such as automobiles and electronics that had experienced phenomenal growth in the s entered a recessionary period in The domestic market for Japanese automobiles shrank at the same time that Japan's share of the United States' market declined.
Foreign and domestic demand for Japanese electronics also declined, and Japan seemed on the way to losing its leadership in the world semiconductor market to the United States, Korea and Taiwan. Unlike the economic booms of the s and s, when increasing exports played the key role in economic expansion, domestic demand propelled the Japanese economy in the late s.
This development involved fundamental economic restructuring, moving from dependence on exports to reliance on domestic demand. The boom that started in was generated by the decisions of companies to increase private plant and equipment spending and of consumers to go on a buying spree. Japan's imports grew at a faster rate than exports. Japanese post-war technological research was carried out for the sake of economic growth rather than military development. The growth in high-technology industries in the s resulted from heightened domestic demand for high-technology products such as electronics, and for higher living, housing, and environmental standards; better medical care and more welfare; expanded leisure-time facilities; and improved ways to accommodate a rapidly aging society.
During the s, the Japanese economy shifted its emphasis from primary and secondary activities notably agriculture, manufacturing, and mining to processing, with telecommunications and computers becoming increasingly vital.
Information became an important resource and product, central to wealth and power. The rise of an information-based economy was led by major research in highly sophisticated technology, such as advanced computers. The selling and use of information became very beneficial to the economy. Tokyo became a major financial center, home to some of the world's major banks, financial firms, insurance companies, and the world's largest stock exchange , the Tokyo Securities and Stock Exchange.
Even here, however, the recession took its toll. In , the Nikkei stock average began the year at 23, points, but fell to 14, points in mid-August before leveling off at 17, by the end of the year. In the decades following World War II, Japan implemented stringent tariffs and policies to encourage the people to save their income. With more money in banks, loans and credit became easier to obtain, and with Japan running large trade surpluses , the yen appreciated against foreign currencies.
This allowed local companies to invest in capital resources more easily than their overseas competitors, which reduced the price of Japanese-made goods and widened the trade surplus further.