Japan's political economy: convergence or divergence with other industrial nations

¶ … Japanese political economy has been caused by globalization and other changes in the domestic and international economies. Are Japan's changes, then, similar to those of other industrial countries that are also subject to the same systematic pressures? Is Japan's political economy converging to other industrial economies or is Japans' changes different from others'?

Japan's Political Economy

Up until the sixteenth century, Japan had been cut off from the rest of the civilized world and the strongest economic powers of the time had no idea of the abundance of treasures and resources possessed by the Japanese lands. In one of the most internationally acknowledged best selling books ever written, Shogun, James Clavell presents the long and exhausting journey from the ports of Holland and Great Britain towards the islands of Japan. The author thoroughly describes the astonishments of the Dutch and English sailors, who had expected the Japanese population to be barbarian, upon discovering a civilized population and a rich country.

The inhabitants of the islands of Japan were highly educated, respectful and mannered people who placed much importance on their culture and customs. The traditional way in which the Japanese conducted businesses and organized their financial and social resources made the sailors feel that they themselves were in fact the barbarians.

Once the country and its high potential for trade had been discovered, numerous countries have developed business relationships based on commerce activities. The foreigners brought the aboriginal populace fine products such as cosmetics, combs or the much desired silk for their kimonos, and, in exchange received precious metals such as gold, silver or copper.

The newly found Japanese population was highly appreciated and believed to be a "sophisticated feudal society with high culture, strong pre-industrial technology and Buddhist universities larger than any learning institution in the West." The European contemporaries stated that the Japanese population "excel not only all the other Oriental peoples, they surpass the Europeans as well."

2. History of Japan's economy

Immediately after it was discovered in the sixteenth century, Japan developed trade relationships with other civilized countries, trades which in fact were the rudimentary expression of import and export.

Two centuries later, Japan's development took the forms of "urbanization, increased shipping of commodities, a significant expansion of domestic and foreign commerce and a diffusion of trade and handicraft industries. The construction trades flourished, along with banking facilities and merchant associations."

The internal economy and consequently the state's incomes were mostly based on the exploiting of the natural resources. Given the rich and moist lands perfectly suitable for agricultural activities and harvesting, taxes were usually paid in agricultural products, mostly rice. The leaders of Japan requested citizens to pay up to 40 per cent of their annual harvest towards the state. Further on, the state used the rice as payment for foreign products.

What is interesting about this certain period in the Japanese economy is the fact that the state used to trade the rice even before it was harvested. They would acquire several goods and products from international commerce partners, and promise to pay the counter value in rise once it was harvested. Today, we refer to these specific business making techniques as futures trade contracts.

In the nineteenth century, the ruling power of Japan became the Tokugwana government. For the first time in the Japanese political economic history, the Tokugwana government officially liberalized trade relationships. Not only that, but the leading power also "first opened the country to Western commerce and influence." In this order of ideas, the Japanese government encouraged and supported young students to continue and specialize their studies abroad and, for those remaining in the country, brought Western professors to teach them the secrets of mathematics, physics, logistics and economics.

In these time periods, Japan went through major changes and reached even higher levels of development. There were two major development periods relevant for the Japanese country.

The first period of economic development began in 1868 and lasted until the end of the Second World War, whereas the second economic development period began in 1945 and lasted approximately until fifty years, until 1995.

In both periods, the Japanese opened themselves to Western ideas and influence; experienced revolutionary social, political, and economic changes; and became a world power with carefully developed spheres of influence. During both periods, the Japanese government encouraged economic change by fostering a national revolution from above and by planning and advising in every aspect of society. The national goal each time was to make Japan so powerful and wealthy that its independence would never again be threatened."

3. Features of the current economy

Today, Japan is the second largest economic power on the globe, after the United States of America. The country's economy is mainly characterized throughout the high level of industrialization, free market and high efficiency of the economic processes and the strong competitor's position on the international market.

Government-industry cooperation, a strong work ethnic, mastery of high technology and comparatively small defense allocation have helped Japan advance with extraordinary speed to become one of the largest economies in the world. Its reservoir of industrial leadership and technicians, well-educated and industrious workforce, high savings and investment rates and intensive promotion of industrial development and foreign trade have produced a mature industrial economy."

Japan does not take pride of a beneficial geography of its settings. Being mostly mountainous region, the country does not possess many natural resources to support the needs of its increasing population. Most of the necessary life subsidiaries are insured throughout trade with international partners.

The major economic and most profitable activities are part of the industry of services (which registers the highest incomes), manufacturing, construction, distribution, real estate and communication. Agriculture, once the main activity in Japan, is now only a small part of the entire economy, taking up about 2 per cent. The main agricultural product realized is still rice, exported towards most regions of the country.

What is relevant and rather different from other major economies is the fact that between the economic agents of Japan and the government exist a strong link and a powerful connection. The sectors of production, distribution and supply have a direct and continuous communication system with all financers and banking institutions.

However, the great economy that Japan was four centuries ago and the even greater economy it is today, are not the same. Many things have changed and numerous factors have contributed to these changes.

4. Changes in the Japanese economy and the factors that generated them Before becoming the strong economic power Japan is nowadays, the country had to suffer numerous changes. The most severe of them all was the necessity to change their mentality. Japan and its inhabitants - with a strong culture and tradition and used to working hard to provide everything they needed for themselves - had to learn to make way for new ideas and propositions. The Japanese had to understand and sometimes even apply the western ways, teachings, culture and mostly production methods and machines.

Besides mentality change, Japan was also subjected to economic factors that affected the country as a whole. These economic factors were both generated from the interior of the country, internal factors, as well as from the outside of the country, external factors.

One of the first internal factors that generated Japan's economic growth was obvious around the year 1945. Coming out defeated from the World War II, Japan's infrastructural economy was devastated. To overcome the negative effects of the war, the government and the people invested all of their savings into acquiring new production technologies. The new rebuilt and equipped factories were net superior to those of America or other victorious states.

Demographic factor more recent internal factor that tends to influence Japan's economy is of demographic nature. However still increasing, the population of Japan is increasing at a lower rate than that of a decade ago. Not only the reduced birth rate contributes to the demographic decrease, but also the more and more obvious market liberalization and individuals' migration towards better paid jobs in other countries.

This means that the country is left with less young workers and more retired people with no other income that their pension. In the times to come, the larger number of pensioners than that of the working population will turn out to be a bourdon upon the shoulders of Japan.

Also, another demographic factor of great importance is the recent migration from the country side to the city. Rural areas tend to be neglected and the industry of those regions seems to literally die. More and more peasants move to urban areas in search of easier, safer and better paid jobs. This movement throws more industrial emphasis on the technologically developed activities in the urban factories, and neglects land working activities in the villages.

Both population decrease and urban migration are demographic factors common to most international economies, therefore, these changes do not imply discrepancy between world economies, nor do they throw a bad light upon the Japanese community.

Privatization of Japan relevant issue of Japanese mentality was given by the attempted privatization of several companies belonging to numerous industry branches. The young generation saw privatization of the public sector as an investment opportunity and a chance of growth for the respective companies. However, older decisive members portrayed privatization as harmful outside force intended to take control of the national Japanese industries.

From this point-of-view, especially due to the two contrary opinions, Japan's privatization process has been considerably slowed down. This was definitely a disadvantage for Japan, as most of their important international business partners such as The United States or The United Kingdom were not faced with this insufficiency. However, things are starting to brighten up in the privatization of Japan, as more and more local companies open up to external investment opportunities, economic growth and international acknowledgment. The first major Japanese companies that agreed to initiate the privatization process were Japan Tobacco and Salt Public Corporation (JTSPC), Nippon Telegraph and Telephone (NTT) and Japan National Railways (JNR).

Globalization

The term of globalization is used to define a multitude of economic, political, technological, social and cultural changes that are intended to bring together and ease work and communication between partners located in different regions of the globe. "Globalization is an unavoidable current which brings about both chances and risks. Majority of firms grow to be multinationals under the globalization move."

However, the careful Japanese nation does not have full and unconditioned trust in the process and prefer to approach it slowly and carefully. They do get involved in international economic activities and adopt culture and social patterns such as fashion, but they also prefer to keep a certain distance from the rest of the world in order to be able to better protect themselves in case of international collapse or any other social or economic disaster.

In regard with the Japanese's attitude towards the process of globalization, one could easily observe that is highly similar to the attitude adopted by Great Britain. United Kingdom also gets involved in the process, but unlike the United States, who puts their hearts and souls into the process, the English prefer to keep a certain distance and realistically analyze both advantages and disadvantages of globalization.

Other changes

On the RIETI web site (Research Institute of Economy, Trade and Industry), Professor Kodama Toshihiro mentions four "signs of changes in the Japanese economy noted in TAMA (technologically advanced metropolitan area)." These signs are:

the emergence of small and medium-size enterprises as engines for new growth;

the formation of a Japanese version of a modular cluster; the roles of venture businesses and human resource issuing from large enterprises; the formation of a municipal alliance and industrial policy based on the process of concept sharing.

Another relevant factor of change is the approach of knowledge by the Japanese community. In the book Japan, Moving toward a More Advanced Knowledge Economy, professors Hirotaka Takeuchi and Tsutomu Shibata emphasize on some of the reasons behind the great economic success of Japan. One of these reasons is Japan's self-teaching nature and the continuous desire to learn more and improve their work capabilities and techniques.

When looking at the other strong international economies, the two professors believe that the entire globe ought to learn from the previous experience and economic history of Japan's. "Three main reasons for learning from Japan and its experience are: the tremendous speed and resilience Japanese industries have shown in caching up with the industrial world and overcoming the oil and yen shocks; Japan still has many strong leaders in some industries, with advanced manufacturing processes; and, thirds, the imbalance between these strong industries and companies and weak industries."

Moreover, the two professors give concrete examples of how the Japanese industry is different from the rest of the international industries, elements which they believe to be the actual reasons behind the tremendous success of Japan. These elements are:

1. Views a company like a living organism, rather than just a machine

2. Focuses on justifying belief much more than on seeking truth;

3. Emphasizes tacit knowledge over explicit knowledge;

4. Relies on self-organizing teams, not just existing organizational structures, to create new knowledge;

5. Turns to middle managers to resolve contradictions between top management and front-line workers;

6. Acquires knowledge from outsiders as well as insiders."

5. Statistics

Currency - 1 Japanese Yen (¥ JPY)

Fiscal Year - April 1 - March 31

Trade Organizations - APEC, WTO and OECD

GDP ranking - 3rd by volume (at PPP in 2005)

12th by per capita (at PPP in 2005)

GDP - $4.9 trillion (2005)

GDP growth - 2.4 (2005)

GDP per capita - $30,700

GDP by sector - agriculture 1.3%, industry (25.3%), services (73.5%) (2005)

Inflation - -0.5% (2004)

Population below poverty line - 5%

Labor force - 66.4 million (2005)

Labor force by occupation - agriculture (4.6%), industry (27.8%), services (67.7%) (2004)

Unemployment - 4.1% (2006)

Main industries - motor vehicles, industrial and transportation equipment, electronics, chemicals, steel, machine tools, processed foods and nonferrous metals

Trading Partners:

Exports - $550.5 billion f.o.b. (2005)

Main partners - U.S. 22.7%, China 13.1%, South Korea 7.8%, Taiwan 7.4%, Hong Kong 6.3%

Imports - $401.8 billion (2004)

Main partners - China 20.7%, U.S. 14%, South Korea 4.9%, Australia 4.3% (2004)

Source: Wikipedia, the Free Online Encyclopedia, November 9, 2006, Economic History of Japan