Japan's Economic Miracle: Causes and Government Role

Introduction: Japan as the America of the East

According to John Hunter Boyle's Modern Japan: The American Nexus, Japan has established itself as the America of the East. Boyle argues this because Japan's robust economic status — referred to as the Japanese Miracle — is a direct result of the relationship between the two nations established following the end of World War II. In other words, out of conflict grew a nexus that Japan still benefits from today.

The Japanese Miracle refers to Japan's staggering post-World War II economic growth. The reason this period is called a miracle is the suddenness of that growth. Boyle examines the various theories proposed to explain this unheralded economic expansion. The most prominent include: the role of United States investment; the Japanese government's economic intervention through the Ministry of International Trade and Industry (MITI); the role of cooperation among manufacturers, distributors, suppliers, banks, the government, and unions; and the overall role of Japan's unique employment institutions.

The American Theory: U.S. Investment and Occupation Policy

Boyle works through each of these theories before making an argument for the one he favors. To understand why Boyle chooses the theory he does, one must first understand the basis of his argument — and to do that, one must hear the arguments for and against all of the plausible theories.

The American theory is based on the role the United States government, in cooperation with the Japanese government, played in developing war-torn Japanese civilization. Immediately following the war, Japan faced economic catastrophe: its economy was in shambles due to the immense expense and destruction caused by its war effort. Under this theory, Japan's overall economic miracle would not have happened without the vital role played by the American government in initiating Japan's initial economic recovery.

Under the auspices of the Supreme Commander of the Allied Powers, the United States made developing Japan's economy its main priority. It saw this process as the way to democratize Japan and thereby prevent a rebuilding of its militaristic past. The United States also observed the rise of communism in surrounding Asian nations and concluded that quickly establishing development, stability, and prosperity in the Japanese economy would be key to preventing Japan from falling to communist pressure.

Ironically, it was this threat of communism that gave the Japanese economy an extra boost. As the United States became increasingly involved in the Korean War, it essentially created a wartime economy in Japan during the 1950s. Just as the 1940s wartime economy helped pull the United States out of its economic depression, the wartime economy of the 1950s ushered Japan toward its 1960s economic miracle.

The Government Theory: MITI and Industrial Planning

The primary fault with this theory is that it gives all credit to Western influences. According to this view, the only reason the Japanese economy flourished was because of the hands-on influence of the West, specifically the United States. As Boyle correctly points out, this mentality completely ignores the important role the Japanese government played in the 1960s, after the United States pulled out and Japan faced a new economic crisis. Furthermore, it fails to recognize the role of the Japanese landscape, culture, and society.

A second theory focuses on the role of the Japanese government following the 1950s wartime economy established by the United States. After U.S. occupation forces withdrew, Japan again faced possible economic catastrophe due to a sharp decrease in incoming revenue. However, the actions taken by the government in the 1960s prevented this from occurring. During this period, the Japanese government directed its resources toward stimulating growth in the private sector, issuing numerous regulations and protections that effectively prevented overproduction.

Once the government had stabilized the private sector, it turned its focus to international trade — and it is Japan's use of international trade that ultimately made its economy the powerhouse it is remembered as today.

One of the best examples of how the Japanese government succeeded in establishing a legitimate economy is the role of the Ministry of International Trade and Industry. According to Boyle, "the particular speed, form, and consequences of Japanese economic growth" are attributable to MITI's programs. Originally established in 1949, MITI's first program coordinated the various industries in order to counteract the deflationary effects of the American withdrawal. To accomplish this, the Ministry coordinated intense cooperation between the private sector and the Japanese government — something typically viewed in the West as anti-free market. However, in Japan's unique situation, this approach worked. Its overall goal was to establish harmony between national production targets and the individual economic interests of private industries.

MITI's most successful economic initiative — the one that ultimately established the miracle economy — was its separation of technology importation from regulations governing other imported goods. In 1950 the Ministry issued the Foreign Capital Law, which granted the agency specific powers to negotiate technology importation issues such as price and conditions. The overall effect of this government regulation was that Japan could promote industries focused on technology development, which at that time was still an emerging market. MITI allowed technology to be imported at low cost, enabling industries to enter the technology market cheaply. The focus of the Japanese technology sector then became improving and creating new versions of these affordably imported technologies. In the end, this tight government regulation allowed the private technology field — and the overall economy — to flourish.