Japan, Economic Recovery and Welfare to 1988

After the war, Japan's government entered into a partnership with private enterprise. But its private insurance industry was devastated. Private insurance companies had failed as Japan had passed through the earthquake of 1923, the Great Depression and then the destruction from bombing raids during the war. Japan's government became the nation's insurance agency: against sickness, injury, unemployment and just about everything else that insurers cover, including social security for the elderly. Japan's government turned the nation into a welfare state comparable to what was developing in Scandinavia. Japan's government, still under occupation, was replacing, it was said, a feudal economy with a welfare economy. Its welfare policy was to benefit from Japan's culture of social responsibility and conformity. Japan was to cling to its universal welfare, and rather then inhibiting Japan's economic growth, it was to develop into one of the fastest growing economies in the world.

The outbreak of the Korean War boosted Japan's economy as Japan became the supplier of goods needed for war. Payments from the U.S. government bolstered the Japanese economy, amounting to 27 percent of Japan’s total export trade. But a more permanent boost to Japan’s postwar industrialization was a government ministry: the Ministry of International Trade and Industry (MITI). In 1951, MITI established the Japan Development Bank, which supplied private industry with low-cost capital for long-term growth. MITI stimulated cooperation between government and private industry. Here was government involvement in the economy that U.S. conservatives had no taste for. MITI coordinated various industries to national production goals, and MITI had the power to promote industries it believed promising. A writer to Wikipedia commented that, “The low cost of imported technology allowed for rapid industrial growth. Productivity was greatly improved through new equipment, management, and standardization.”

By the mid-1950s, Japan's economy reached prewar levels. In 1951, Japan's Gross National Product was half that of West Germany's, one-third of Britain's, and 4.2 percent that of the U.S. GDP. In the late 1950s, Japan's rice crop set new records, a result of advances in fertilizers, insecticides and seed strains. Japan expanded its fruit growing, vegetable, meat and dairy industries, and with the Japanese consuming more bread and meat, the nation became self-sufficient in rice. The greater productivity in agriculture made more people available for the workforce needed in Japan's industrial development. Production in textiles, small electronic appliances, photographic equipment and automobiles increased with a competitive advantage over the methods and practices of U.S. industrial leaders.

In 1960 Japan had 16.5 percent of the per capita GDP of the United States. The U.S. was burdened by its commitments against Communism, including its intensified efforts in Vietnam from 1965 into the early 1970s. And by 1988, near the end of the Cold War, Japan had passed ahead of the U.S. in per capita GDP and had moved further ahead of South Korea (part of its former imperial possession). And Japan had gained also on Switzerland, the world leader in per capita GDP in 1988. In 1960 Japan had 27.2 percent of Switzerland's per capital GDP. In 1988 that figure had risen to 82 percent.

In 1962, Japan's agricultural work force was 29 percent of the overall work force, down from 41 percent in 1955. Its Gross National Product in 1962 was $44.8 billion measured in 1951 dollars, up from $15.1 billion, and in 1963 its Gross National Product increased 13 percent. Japan had been saving a good percentage of its earnings and a higher percentage of the nation's wealth went into investment rather than into the consumerism pursued in the United States. With economic recovery, Japan's government was able to increase its investment in research and development, which, in turn, helped Japan's economic development. In 1967, Japan was investing 1.6 percent of its Gross Domestic Product on both civil and military research and development -- compared to 3.1 percent for the United States and 3.2 percent for the Soviet Union.

By 1970, Japan had overtaken all European economies. It had become the second largest economy in the world and it was a world leader in education. In 1975, Japan's GNP was double Britain's and 40 percent of that of the United States.

Japan's industrial work force was benefiting from the economic growth. The work force was paid relatively well -- nothing like the subsistence wages in the Soviet Union during the economic growth years of Stalin's five-year plans. And the Japanese continued to save at a higher rate than people in the United States.

The country's continuing birth to death welfare was benefitting from the country's economic success. According to Niall Ferguson (The Ascent of Money, p. 209), "In 1975 just 9 percent of national income went on social security, compared with 31 per cent for Sweden."

In 1983, in non-military research and development Japan pulled ahead: 2.7 percent of GDP against 2.0 percent for the United States and 1.0 for the Soviet Union. [note]

The Columbia History of the 20th Century, Richard W. Bulliet. ed. 1998, p. 323.

By supplying the country complete social insurance and partnering with private enterprise to advance the country economically, Japan's peace and business-oriented government was doing more for the country than the super-patriotic militarists of the 1930s and early 40's had dreamed of.countries.

Economically, Japan still had major concerns. It was dependent on various imports -- feed for its livestock, wheat and other cereals and iron ore for its steel and iron industries. It had to import all of the oil that it consumed. Japan imported more fish than it exported. Its farms were small and inefficient compared to those in the United States, and Japan needed to protect its farmers from competition with farmers in the United States in order to maintain a healthy independence in food production -- something not always appreciated in the United States. Japan was always on the edge of belt tightening, to hold back from an unfavorable balance of trade. But Japan was also investing heavily abroad, creating and diversifying wealth for Japan and tying itself more closely with other peoples -- the opposite of what it was doing in the 1930s.