“The fruits of victory are tumbling into our mouths too quickly”, these golden words were said by the Emperor Hirohito of Japan during the Great World War II. Mostly everyone knows about World War 2 but it’s time to ponder about Japan’s Economic Rebirth after World War II. The dramatic growth of the Japanese economy after world war 2 and till the end of the cold war is famously known as The Japanese Economic Miracle.
After the US, during the economic boom, Japan rapidly became the world’s second-largest economy. The period of the Japanese economic miracle was around 1945 to 1991. After WWII, the US provided financial aid to Japan and the Japanese government. laid down some measures which led Japan’s economy to grow continuously. Now the US wanted to make an ally with Japan post -WWII, so as to show it’s a significant presence in Japan and to slow down the expansion of the Soviet Union’s influence in the Pacific. Thus, the US decided to set up a camp in Japan post WWII which included both military personnel and civilians. During the Japanese economic miracle period, manufacturers, distributors, banks, and suppliers came together and worked together forming groups called keiretsu.
Phases of The Japanese Economic Miracle:
The Japanese Economic miracle happened in four stages: The Recovery, The High Increase, The Steady Increase, and The Low Increase Phase. It’s worth noting how even after the heavy bombardment of the nuclear bomb in Hiroshima and Nagasaki and air raids on Japan, it was able to overcome the difficulties and recover from the trauma of World War 2, and accomplished the title of the world’s second-largest economic entity.
The Recovery Stage (1946-1954):
Japan was seriously hurt after World War 2. Most of Japan’s industries, for example the Japanese cotton industry, were brought to their knees because of the war. Everyone suffers when a war breaks out and Japan being no stranger to these after effects of war witnessed a significant drop in industrial output. This recovery phase focused on rebuilding all Japanese industries, especially cotton, coal, and steel industries.
A successful initiative taken up by the Japanese govt. to set up economic reforms was the reason of recovery from war trauma. The Japanese govt. mainly focused on industrial policy. The second reason that led to the rapid growth of Japan after WWII was the outbreak of the Korean War. As the US was engaging in the conflict on the Korean Peninsula, the procurement of equipment and supplies was taken from the Japanese economy. Japanese industry was providing the required logistics to American Forces fighting in Korea. So, Japan’s economic recovery was actually at the cost of enabling the destruction of Korea. This swift recovery of Japanese industries led to the name ‘Japanese economic miracle’.
The High Increase Phase (1954-1972):
After achieving domestic economic reforms and gaining support from the US, Japan was able to soar from 1950 to 1970. From the period of 1967 to 1971, Japan’s economy accomplished the most significant recovery in the country. Japan became one of the most developed countries in East Asia. Not only the industrial sector, but the education sector as well played a vital role in economic growth by producing disciplined and highly skilled and proficient workers.
The Steady Increase Phase (1973-1992):
There was an oil crisis in 1973 and 1979 which saw the prices of oil triple in both instances. The oil prices increased from 3$ per barrel to over 13$ per barrel. During this time, as the supply capacity could not respond effectively to the rapid expansion of demand, Japan’s industrial production decreased by 20%, and increased investments in equipment often invited unwanted results: tighter supply and higher prices of commodities. The main reason for this crisis was the economic sanctions set by the organization of Arab Petroleum Exporting Countries on countries that seemed to be supporting Israel during the 1973 Arab-Israeli War. Though these sanctions trembled the economies of other countries all around the world, the Japanese economy continued to grow.
The Low Increase Phase:
This phase began around 1992 when the economic bubble burst and led to an economic recession. Japan had an economic bubble in the 1980s. Japanese banks over-lent the money to industries which increased the inflation in the Tokyo stock market. This inflation period was followed by the deflation period which affected the Japanese economy negatively.
The Biggest Contributor to the Japanese Economic Miracle:
The largest growth ever in Japan’s economy was seen in 1960. The Ministry of International Trade and Industry, formed in 1949, played an important role in the economic rebirth of the country. Synergy was created between the private sector and the govt. by the ministry to improve the productivity of the industries which led to economic gains. Control over technology imports was granted to the ministry and later they had had control over all of Japan’s imports. The economic interventions by the ministry are what led to the rapid growth of Japan’s economy during the Japanese economic miracle. The Industrial sector had a boost because of the importation of affordable technology. The low cost of imported technology allowed better productivity through standardization, management, and new equipment. The Ministry of International Trade and Industry obtained the capability to regulate all imports with the abolition of the Economic Stabilization Board and the Foreign Exchange Control Board in August 1952. Although the Economic Stabilization Board was already dominated by the Ministry of International Trade and Industry, the Yoshida Governments transformed it into the Economic Deliberation Agency into a mere “think tank,” in effect giving MITI full control over all Japanese imports. Power over the foreign exchange budget was also given directly to the Ministry of International Trade and Industry.
While the Japanese stock market hit its all-time peak at the end of 1989, making a recovery later in 1990, it dropped precipitously in 1991. The same year when the Gulf War took place and the dissolution of the Soviet Union happened.