Japan Becomes a World Economic Power: 1945–1973

Despite the experience and knowledge of its people, Japan was a devastated nation at the end of World War II. Millions of Japanese were without the basic necessities of life. Approximately one-fourth of all Japanese homes, as well as a high proportion of factories and shops, had been destroyed by the war. Japan was also stripped of its entire empire, which had been a vital source of low-cost raw materials, and of its investments in China and Manchuria.

Yet Japan, beginning just a few years later in the early 1950s, would grow its economy at an annual rate of approximately 10 percent for almost 20 years. By 1957, Japan’s recovery from World War II was complete. Foreigners who came to Japan for the 1964 Tokyo Olympics returned to their respective countries with stories of the economic vitality of the Japanese. By the 1970s, these long-term Japanese economic growth rates were commonly being referred to as ‘‘an economic miracle.’’ Even though in the early 1970s the Arab oil shocks and other factors ended Japan’s whirlwind growth, the Japanese would still lead advanced nations in economic growth until the 1990s.

Perhaps the best way to understand the significance of the miracle for millions of ordinary Japanese is to examine the fortunes of one person and his family in the years before and during the high-growth era. Tanaka Sanosuke was a real-life Japanese blue-collar worker whom the late David Halberstam depicted in his awardwinning book The Reckoning. Tanaka was born into a peasant family on a tiny farm near Tokyo in 1915. The Tanaka family lived a hard life. Both parents and children 11 years of age or older worked long hours in the rice paddies, but the family had to render four-fifths of their annual crops to the landowner. The Tanakas lived in a tiny one-room, thatch-roofed hut and usually ate only rice mixed with millet. During the occasional good times, the family could replace the hard millet with vegetables. On rare occasions, the Tanakas ate fish, but they could never afford meat. The village of 500 where the Tanakas lived was almost entirely cut off from the outside world. As was true with most Japanese in the early and mid-20th century, the villagers owned no radios to keep up with the news or cars to visit other parts of Japan. In fact, young Tanaka was 8 years old before he saw his first gas-driven vehicle, a bus.

Although Tanaka dreamed of an education, poverty made this impossible. After completing the eighth grade and delivering coal for a small business in a neighboring village, in 1937 he moved to Yokohama and was hired as an assembly worker by Nissan (then Datsun), a new company that was part of a small Japanese automotive industry. Although Mr. Tanaka’s pay was modest, he earned almost as much in a month with Nissan than he made in a whole year working in an earlier job. The young worker was the first member of his family to afford the purchase of a suit. Eleven years later, after returning to Japan from military service during World War II and going back to work at Nissan, Tanaka’s life seemed worse than before the war. For several years, this now father of two children could not even buy enough food to feed his family and was reduced to foraging the countryside for edibles. On Sundays during the first months after the war, Tanaka spent his day off hanging around American occupation troops, hoping to get work as a day laborer or at least scrounge food scraps the rich Americans threw away. Then the miracle years began.

By 1954, Nissan profits and salaries had grown, and Mr. Tanaka could purchase a small three-room house. It was a proud day for all five members of the family when they moved from their one-room house into these larger quarters. By the mid-1950s, Nissan and many other Japanese companies were already rebounding from the effects of World War II and exceeding prewar production levels. As the years passed, the Tanaka family’s standard of living steadily improved. In 1957, they acquired a television, and in 1963, the family joined the middle class through purchasing the ultimate status symbol: a first car.

The gains in wealth that the Tanakas and many other Japanese enjoyed in the 1950s and 1960s did not come easily. Japanese worked long and hard to rebuild their country and then take the economy to undreamed heights. In Mr. Tanaka’s company, Nissan, for example, each year it seemed workers toiled harder than ever to meet increasing consumer demand.

Annual automobile production increases staggered the imagination. In 1957 Tanaka and his coworkers celebrated when the company attained the monthly production goal of 5,000 cars and trucks. At the time, virtually no company employee dreamed that three years later the monthly number would double to 10,000. Nissan was only one of many companies where people worked incredibly long hours and, by the early 1960s, were somewhat awestruck at the fruits of their labor. Japan had arrived as an economic power.

What were the reasons why Tanaka Sanosuke and millions of others like him experienced dramatic improvements in their material well-being during the two decades of the economic miracle? Economists concur that Japan’s postwar economic rise can be attributed to a number of factors.

After World War II, the Japanese government continued to practice statedirected capitalism, but with the repudiation of militarism, economic development was the top national priority. Ministry of International Trade and Industry bureaucrats attempted to identify potential blue-chip industries and subsidize them while discouraging foreign and even domestic competition. Although scholars debate the effectiveness of these policies, during the miracle years several industries, such as steel and electronics, seemed to have benefited from initial government assistance and then gone on to be highly successful domestically and globally.

The U.S. occupation of Japan was beneficial to eventual economic growth. Although there was no Marshall Plan in Japan that directly funded rebuilding economic infrastructure, the Americans encouraged the Japanese government to initiate anti-inflation and prosavings policies that stabilized the yen and helped build capital for business expansion. The famous Article 9 of the U.S.-imposed Constitution forbidding the establishment of armed forces resulted in long-term economic benefits. Even today, Japan still spends a low percentage of national wealth on defense compared to other nations, thereby freeing resources for the civilian economy. The United States, as recounted in an earlier chapter, also unintentionally helped the Japanese economy through the American military’s high demand for goods and services while fighting the Korean War. During the early postwar years, the United States and the United Kingdom played leading roles in creating a world climate much more conducive to free trade than in the past. This helped to create a favorable situation for Japanese exports in the United States and a number of other countries.

The miracle received a boost from Japan’s shift from more resource-dependent to less-dependent industries. Before the 1950s, a number of leading Japanese industries, epitomized by textiles, were heavily dependent on expensive raw materials. By the latter part of the same decade, the Japanese were producing goods, such as cars, that required fewer imports. This made Japanese exports less expensive. Even though Japan’s miracle was not export led and the country did not begin substantial exporting until the 1960s, when the export boom did occur in Japan, it made a strong economy even stronger.

Enhancements in both human capital (worker skill levels) and financial capital available for investment powered the economy. As late as 1950, 50 percent of Japan’s population lived on farms. Japan’s excellent schools and a high birthrate placed employers from the 1950s until the late 1960s in the enviable situation of having a large supply of young, well-educated, rural high school or junior high school graduates who were no longer needed on farms and who desired industrial employment. Japan’s booming industries were also aided by the population’s high personal saving rates. Government policies both provided savings incentives for Japanese and, for the most part, limited their saving and investing options to banks, which then made large amounts of funds available to companies for industrial expansion at low interest rates.

Cultural and structural aspects of Japan’s postwar workplace environments also contributed to the nation’s impressive economic growth. Japan has industrial rather than craft labor unions, which means management negotiates with one labor union rather than several. This form of union system encourages efficient use of human resources through facilitating communication between management and labor. The so-called lifetime employment system has been cited as another cause of the miracle. In Japan, beginning with a few experiments before World War II but becoming widespread in the 1950s, many firms institutionalized the practice of giving permanent positions to both white-collar employees as well as many blue-collar workers. The rationale behind this practice, which still continues, has been that permanent employees will be more loyal to the company and also more productive because their job security is guaranteed. Despite the misconceptions of some foreigners that everyone in Japan is guaranteed employment, formal permanent employment has traditionally been largely a male privilege and is primarily limited to large companies in the private sector. Government employees in Japan as well as most other developed countries usually have stable long-term employment prospects.

Whether or not lifetime employment is extended to workers, societal beliefs that firms should take care of employees and government policies supporting employee retention have caused employees in businesses of all sizes to be more reluctant to lay off Japanese workers than is true in the United States. This Japanese cultural propensity was a positive force in the high-economic-growth years, as was a corporate ‘‘welfare’’ system in which the larger companies provided subsidized rental housing for single workers, annual employee bonuses, and special financial benefits from affiliated banks. Harmony within Japanese firms was also promoted by a seniority system that provided virtually automatic pay raises that were usually based on age and/or the number of years an individual worked for the company.

Also, Japanese manufacturing companies pioneered ‘‘quality control circles,’’ a worker-participatory decision-making system that dramatically improved the quality of manufactured products and captured the attention of businesses worldwide. Quality control circles are groups of 6 to 12 workers in the same assembly section who meet regularly to identify, discuss, and pass on to management possible innovations for improvement of efficiency and product quality. In the late 1940s and early 1950s, W. E. Deming, an American statistician and college professor, after unsuccessfully attempting to convince American corporate managers to involve assembly workers in production decisions, traveled to Japan for a series of lectures. A number of large Japanese companies during the miracle years, beginning with Toyota Motor Corporation, adopted Deming’s idea of quality control circles.

Today the Japanese have made the late W. E. Deming and quality control circles famous all over the world. Many large Japanese companies consistently produce fine manufactured goods because millions of ordinary workers in quality control circles formulate useful suggestions on how to improve work processes or product quality, and these are adopted by management. It is not unusual for such multinational companies such as Toyota and Hitachi to receive more than a million suggestions each year and to adopt the majority of these.

Japan’s climb to world economic leadership was also greatly abetted by the domestic and foreign postwar political situation. Since its inception in 1955, with two exceptions, the probusiness Liberal Democratic Party elected all of Japan’s prime ministers. Thus, the Japanese enjoyed a stable domestic political situation with a party in leadership that unquestionably ranked economic development as the major national goal. U.S. involvement in the Cold War also indirectly benefited the Japanese economy. U.S. government officials considered Japan, with its close proximity to China, the Korean Peninsula, and the then Soviet Union, to be so strategically important that it largely ignored questionable Japanese trade policies in return for loyalty in the long superpower confrontation. Therefore, Japan was able to exclude many foreign products while selling its own products in other countries without garnering extensive foreign, and especially American, criticism.

Despite Japan’s good fortune and beneficial government policy, the economic miracle would not have occurred without the incredible hard work of Japanese of all walks of life and the fierce competitiveness and innovative entrepreneurship of businesspeople. During most of the miracle years, Japanese workers led the world in annual number of hours worked. Successful Japanese corporate leaders were intensely competitive at home and abroad, pursuing economic success with extremely high levels of dedication. Honda Motor Company founder, the late Honda Soichiro, made this statement at the time he established his company: ‘‘If my company becomes bankrupt because of the rate at which I expand my plant, the plant itself will remain to be used for the development of Japanese industry. So I will take the risk’’ (Allen 1981, 234). This devotion to both economic growth and Japan’s welfare encompassed in Honda’s words symbolized a national spirit during the miracle years that served to help make Japan’s economy a world leader today.