Some thoughts on the economic development of Japan

Brief outline of Japan's history

- 1603-1868: Edo Period - Establishment of a transport system, start of commerce through nationally unified markets of rice and other light industries like cotton.

- 1869-1912: Meiji Period - Goals of industrialization, political development (constitutional monarchy, promulgation of its constitution in 1889), militarism to expand its 'zone of influence'. This was also a time whereby Japan worked hard to 'catch up with the rest' and was able to successful export silk and cotton. Other heavy industries like locomotives, shipbuilding and electrical machinery also received government support in its development.

- 1912-1926: Taisho Period - The World War I (1914-1918) created a spike in demand for Japanese goods worldwide. This was good for Japan because it was simultaneously able to develop its Heavy and Chemical Industries (HCI) like steel. Joint ventures with Ford, General Electric and other Western counterparts allowed Japan to make great technological advances in production. However, it became clear that this increase in output was unsustainable and the bubble burst in 1920.
At the same time, Shidehara, the Minister of Foreign Affairs, wanted Japan to strive for global peace as a first class country. However, this was undermined by the military in the 1927 when troops were sent to China without informing the government.

- 1927: Showa Financial Crisis: To ensure the smooth functioning of the financial system despite the Great Kanto Earthquake in 1923, the government rediscounted 'earthquake bills' of banks. Unfortunately, only half of these bills were genuine. The collapse of the Bank of Taiwan (a colony of Japan) and Suzuki Shoten ( a large company ) triggered bank runs. In this year, more than 2000 banks were closed/merged, leaving only a dozen left. This crisis was key in modernizing Japan's financial sector.

- 1930-32: Showa Depression: The Great Depression in 1929 dampened prices and output worldwide and Japan also suffered during this period. Takahasi, also known as the Japanese Keynes, managed to pull Japan out of the crisis. But at this time, the military has gotten much stronger and launched a coup. While this failed, the Manchurian crisis of 1931 and subsquent war with China in 1937 completely changed Japan's economy.

- 1937-1945: It was a shift to a planned economy whereby military production and mobilization of human resources became key in fighting its wars in the Pacific. Singapore was occupied from Feb 1942 to Aug 1945.

- 1945-1951: Post-war recovery and the occupation by SCAP (The Supreme Commander of Allied Forces) Aid and subsidies were the pillars of Japan's post-war economy.

- Early 1950s - 1970s: The Korean War (1950-53) contributed to Japan's growth, together with
a sound industrial strategy executed by the Ministry of Trade and Industry. They supported the private sector and enaged actively in industrial promotion efforts.

- 1970s-early 1980s: Japan's economy matured alongside its own social transformation where people switched from traditional paper-window houses to aparto (apartments). The Bretton Wood System collapsed in 1971 and the Japanese Yen floated. Of course, such structural improvements to its economy led to a devalued yen which caused trade friction with the US. (This is similar to US's assertion for a revaluation of the Chinese Yuan today)

- 1980s-1990s: Burst of the asset bubble and the start of Japan's Lost Decade. There are a few proposed causes for the sustained impact of the bubble - Inefficient banks in need of structural changes, pension systems, hollowing out of the manufacturing sector due to China etc.

- 2000-Today: Today, Japan's economy is marked by slow growth and high fiscal deficit.

(The Economic Development of Japan, Kenichi Ohno)
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After having a chance to understand the historical, economic and political context surrounding Japan's economic development, I am definitely impressed with this country's ability to absorb foreign influences while preserving its own national identity (also the author's opinion). While it seems that the US free economy is superior in fostering innovation, the Japanese economy also encompasses important Asian values of long-term relationships, quality, teamwork and equity. It has also displayed great will and determination to recover after every crisis, through systematic implementation by the government in consultation with the private sector. The slow growth today may be partly attributed to the stagnation of the political system. However, as the upcoming elections might reveal, Japan's political system may be getting the revitalization it needs to kickstart its economy again.