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Japanese Economy : The Rise Of A Super Power

1992 words - 8 pages

From the post World War II reconstruction period to the 1960's, the Japanese economy achieved an average annual growth rate of over 10 percent, a rate that was high not only in comparison to other countries, but historically high for Japan as well. (Kumon and Rosovsky 68) It was during this period that the foundation was set for this country to become an economic giant. Some of the most characteristic economic mechanisms of the Japanese system trace their roots to that period; an understanding of that period is indispensable when trying to understand the current Japanese economy.The time called postwar reconstruction started for Japan with the end of World War II in 1945. The economic toll ...view middle of the document...

The resources were allocated to the industries deemed most "important" from a national standpoint. This, in practice, meant that bank loans were concentrated in steel, electric power, chemicals, and other industries that formed the basis for industrial development. These sectors were also given favored tax treatment and enjoyed other policies designed to foster their growth. Graded production was only used for a very brief period fallowing the end of the war but the philosophy behind it has made it self felt in later industrial policy. The postwar policies for the revitalization of industry made enormous contributions to real economic activation, but they also caused runaway inflation. Excessive government intervention into the private sector caused corporate management to become lax. This, in turn, prompted a clamp down on finances in 1949, when the government unveiled a variety of policies that were designed to rationalize industrial activity. These policies became known as the "Dodge Line" after the name of an American minister invited to Japan in the capacity of advisor. (Ito 59) Their goals were to one, control fiscal expenditures in order to achieve a "small government", and two, to review subsides to corporations, placing more emphasis on market mechanisms, encourage household savings, draw a clear line between government and private activities, and three, to do away with price controls and double standard foreign exchange, producing a free and competitive domestic market that made it possible for the Japanese economy to revive. The Dodge Line forced private corporations to take responsibility for themselves in what became a free and competitive environment. They were given the incentive to rationalize themselves, which became one of the deciding factors in the high-growth period that began in the 1960's. There was another factor that supported the postwar economic boom, The factor was none other than the Korean war. (Ito 60) The dodge line was an effective policy for holding down inflation and allowing market mechanisms to recover, but it also brought about fears of deflationary pressures due to tightly controlled fiscal policies. With the outbreak of the Korean War the United States started buying a variety of goods and services from Japan, most notably military-related goods. The "special demand" that was created removed any deflationary effects that the dodge line would have had and helped get the Japanese economic stride get into stride smoothly. By 1951, mining and industrial production had recovered to prewar levels, and 1952 saw consumption rise to a level as high as it had ever been previously. Until Japan recorded its first large surplus in 1968, trade fallowed a clear pattern of having deficits during growth periods and surpluses during slumps. (Nester 131) This meant that, when trying to expand the economy by using a policy of fiscal and monetary expansion, the limits of what could...

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