How Did Japan Industrialize Itself So Quickly?
In my previous post, I discussed how agriculture set the stage for a manufacturing boom in Asia. Again, after a solid agricultural sector is established, an economy can then shift its focus to manufacturing:
From Feudalism → Land Reform → Food Output → Poverty Reduction → Increasing Tax Revenue → Infrastructure Reinvestment → Manufacturing → Services
Today, I'd like to review Japan’s industrial milestones and give you my key takeaways...
Pre-WWII: Japan was the first of its neighbors to industrialize pre-WWII, but by the war, industrial production had fallen to 27.6%.
Post-WWII: Japan's rapid recovery from WWII was partly driven by the outbreak of subsequent wars in the region, such as in Korea and Vietnam. The United States eventually participated in these wars, providing a unique opportunity for the Japanese...
Asia is distant from U.S. territory, so the logistics of supplying and maintaining the United States Armed Forces soon became a significant problem for the American government. As one of its major allies in the area, Japan was able to position itself as a key node in the U.S.'s supply chain during these decades of conflict.
Combined with Japanese prowess and dominance of the global consumer manufacturing sector, this injection of U.S. government spending in the Japanese economy provided an added boost of cash to its domestic industry and economy.
1949: The Ikeda Administration instituted the Foreign Exchange Allocation Policy, a system of import controls designed to prevent the flooding of Japan's markets by foreign goods.
1951: The government initiated a strategy focused on the production of raw materials including steel, coal and cotton, to form the bedrock of the new manufacturing economy.
1960: Total production levels reached 300% of pre-war levels. The government stimulated the economy further by encouraging the recruitment of new labor, especially female labor. The boost in the workforce allowed production and wages to expand, allowing for the development of a new consumer class capable of powering domestic sales.
The key takeaway:
The military industrial complex was a major factor in fueling Japan's growth. The allies essentially 'piggy-backed' off of Japan's pre-existing manufacturing base to breathe new life into the sector, underscoring the importance of understanding how governments influence an economy and markets.
Today, the issue is that highly-developed nations like Japan face innovation issues. And how they further develop all three sectors - agriculture, manufacturing, and services - we will be monitoring closely.