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What were the main influences on post-war Economic Reconstruction?
With the famous attack on Pearl Harbor on the 7th of December 1941 Japan entered in to an imperial war in which Britain was already fighting in, the Second World War would have grave consequences for both economies. In 1945 when peace had been achieved the immense damage that had been induced had to be repaired. Japan’s total value of losses was estimated at 64.3 billion Yen (a quarter of the national wealth) and 3 million men had been lost . By pouring all her strength in to war it has been described that Japan ‘in so doing was destroyed’ , and as well as this Japan had been fighting China since 1937. Britain suffered from the same circumstances as Germany had proved a worthy enemy incurring a balance of payments deficit in 1946 of 344milions, yet by the mid 1950s both countries had returned their economies to their pre war status. The main influences that caused this post war economic reconstruction will be identified in this essay.
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The end of war brought new problems to Japan; the main ones were unemployment, inflation and a drop in coal output. However the government prioritized these problems, unemployment never really became a problem because those who could not get a job used their entrepreneurial skills, such as working on stalls. Whilst with the devastation of the cities many returned back to the countryside and agriculture. By 1947 Agriculture had absorbed a massive 18 million workers in total. In the early years after the war Japan had hyperinflation as the Yen’s value went down 300 times, the population was encouraged to invest their money and then they were given rationed withdrawals to combat this. Policy and intervention was greatly needed from the government, yet it was policy implemented in wartime that helped to aid Japanese recovery as much as in the post war period. A lot of industry had become orientated to produce war goods, when the war ended they quickly were able to return to producing more consumer-based goods. There was a shift away from textiles and a movement to new advanced productions like chemicals. The changes that had been made for war production had beneficial effects after 1945, factories were now better equipped for more advanced production and so to were workers. Much of the capital investments factories had made still remained and so could be used to increase production. In fact after the war national lifestyle would originate in changes that had begun during the war, ‘Factories that made machine guns turned to making sewing machines’ . Better-educated workers and engineers had been created and now could specialize in their particular technologies. A popular system of sub contracting which had been implemented also remained, as small firms provided the parts for large industries, this facilitated production increases and allowed for standards to increase. This relationship remained long term between large and small firms. 1944 also saw the implementation of a preferential financial system called the ‘System of Financial Institutions to finance Munitions Companies’ giving firms easier access to funds to maintain production. After the war the Bank of Japan adopted this system for authorized industries, this powerful relationship was known as the Keiretsu, giving a huge advantage to production. These domestic policies were led by a strong highly interventionist government and the Powerful Ministry of International Trade and Industry. This established a guidance relationship with industry; the breaking up of trade unions was one of its main actions. There was the overseeing of National Health Insurance, which included payments for the old age, disability and death. In 1944 there was the inclusion of staff and women. Interest rates were maintained at a strictly low level to aid private capital investment, as a lot of companies had lost a lot of money from war, a lot had to be borrowed. The government pursued this ‘low interest-rate’ when inflation should have rose, and national debt increased. These systems that allowed post war development had been laid in war years even if they were not supposed to be in place long term. By the late 50s The Japanese economy was growing at around 10% each year, and foreign assets were also increasing. However the Japanese government was not completely free to run its own country.
America chose to occupy Japan in order to stop any possible threat of military growth again. Although the Japanese government was allowed to exist America oversaw policy and intervened when it felt necessary. This occupation would last until 1953; in this time America at first believed the rebuilding of the economy was a Japanese problem. This was known as Democratization in which ‘the existence basis of Japanese military strength must be destroyed and not permitted to revive’ . This meant that any industries that could possibly start producing military goods were liquidated, and the well-established Zaibatsu were dissolved. Democratization had positive effects for Japan though which were not expected, the dissolution of the Zaibatsu and established hierarchical business led to more smaller companies in a more competitive standing. Competitiveness led to improved efficiency and quality in production, and was a great stimulant to the sector. There were also advantages to agricultural reforms, as the status of the small farmer changed, farmers became their own masters and had more money in their pockets as tax was lowered. Life in rural areas improved and Japans agricultural sector saw advances in technology and methods, as well as an increase in demand. Democratization also had advantages to the average laborer as they banded together to demand higher wages and better living standards, which in time created more demand for new consumer markets. Japanese lives were being changed to a form of American democratic principles, achieving an internal revolution.
American attitudes to Japan changed in 1948 when Russia started to threaten Europe in Berlin. America began Marshall law in Japan aiding them in order to form a barrier to communism in South East Asia. The Korean War also brought benefits to Japan as America used the country as an ally and a base. With large amounts of aid and now the spending of dollars in the country, and demand for consumer goods, half of Japanese imports were paid by the USA expenditure in the area. By the 1950s commerce had rebounded, and industry was rebuilt, exports were restarting, and the agricultural sector was thriving. Finally the San Francisco Treaty of 1952 returned Japan to political independence. By 1955 economic strength resembled that of the prewar period. The technological gap which had existed between Japan and established industrial countries was being tackled, as companies made an effort to import latest machinery. New technologies had also managed to establish themselves; the chemical industries and petro-chemical industries were examples of this. Whilst household electrical goods like vacuum cleaners were being produced to fill consumer demand. Japan had achieved running a successful dual economy, with both agriculture and industry flourishing.
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After the war in Britain the labour government took power, intent on a program of socialist reform, the immediate problem was the resurrection of the flagging British economy. Employment pre-war had been a grand problem, however there was only a small number unemployed after the war, the real problem Britain had was its balance of payments, and the solving of this became a priority for the government. Large increases in external exports became a necessity, however to a degree this was stifled by high home demand. Rationing had created pent up consumer needs, after the war there was very high demand for consumer goods. Like Japan Britain needed to be ‘reconverted from military to civilian production’ , the immediate fear of bankruptcy was facing the country in the face. The problem was that the war effort had been fought without the foresight of the damage afterwards that would be incurred, Lord Keynes describes that ‘ we fought this war on the principle of unlimited liability’. Large debts had been incurred, large amounts of gold used up, shipping had been damaged, export markets sacrificed, and foreign investments sold, Keynes identifies that Britain faced a ‘financial Dunkirk’ . Exports had to be increased however criteria had to be fulfilled if this were to be successful.
A large increase in industrial production had to be achieved, and output per man improved. There were more workers than in pre-war times however machinery and capital had been damaged; hence in order to improve efficiency the government had to improve facilities. Capital had to be distributed fairly among the sectors so that growth would be equal, hence industry could be rebuilt, and the labour force provided with machinery. Money had to be spent on the damage caused by the war, and the upkeep of existing tools in place, the total cost of this was estimated by professor Robinson at 7300 million pounds . However with present balance of payments this amount would not be realized until 1954. The problem was worked on hard and large amounts of capital spent, by 1950 industrial production was 50% higher than 1938 and output per man was 26%, at this rate Britain was growing at a faster rate than the USA. The balance of payments problem seemed to be to great to be dealt with, as the Washington talks in 1945 has set out that it would be turned around until at least 1954. British deficits in 1946 stood at 344 million, the next year it was believed it would increase slightly however it jumped to 545 million. The basis for solving the problem was however sound, and through circumstance in 1948 the balance of payments was in profit by 26 million. This had been achieved due to increases in output and production levels, causing higher export levels, and also a reduction in government foreign expenditure, and an increase in world prices. In fact the balance of payments became a success, as in 1950 surplus now stood at 258 million, but the impending world arms race surrounding the cold war would affect this.
In conclusion I believe Japans accelerated post war growth was induced by high amounts of private investment in new factories and equipment, as well as innovations and technological advances. It was also the circumstance provided by wartime policy which when war ended was able to adapt and develop the economy. The government’s monetary and fiscal policy provided a good environment for industry to start up; low interest rates were an example of this. But most importantly America’s role and reversal of policy towards Japan is also very important as it urged Japanese independence and recovery. Britain was allowed to achieve a similar recovery through different methods as unemployment was not an issue, balance of payments was the main problem, and an increase in exports needed. This was achieved by driving up production and efficiency so that the home market could be supplied, and foreign demand fulfilled. The standings of both economies today in the international market is a credit to how they adapted and provided the correct conditions so that war would not lead to their collapse. Therefore the real main influence for both countries to post war recovery was not the damage that had been done by war but the attitude and belief by the governments that they could turn the situation around.
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Page 14 The Postwar Japanese Economy
Page 3 The Postwar Japanese Economy
Page 15 The Postwar Japanese Economy
Page 19 Postwar Economic Growth in Japan
Page 133 Lectures On Modern Japanese Economic History 1926-1994
Idea of Jerome Cohen, Lectures on Modern Japanese History 1926-1994
Page 12 Britain’s Economic Problems
Page 12 Lord Keynes - Britain’s Economic Problems
Page 12 Lord Keynes - Britain’s Economic Problems
Page 20 Prof Robinson - Britain’s Economic Problems
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