Class 11 and class 12 (extra) japan’s economic development 2018

Class 11 and Class 12 (Extra) Japan’s Economic Development Table of Contents I Pre-conditions for Modern Economic Development in Japan II Long-term Historic View of Japan’s Economic Development Long-term Economic Growth ~A Comparative View~ Cyclical Economic Growth Swings vis-à-vis Economic Events Before WWII : 1885~96 Upswing, 1897~1903 Downswing, 1904~18 Upswing, 1919~28 Downswing and 1929~36 Upswing After WWII : 1945~56 Downswing, 1957~69 Upswing, 1970~75 Downswing and 1976~87 Upswing Development Finance, MPP, VJU Class 11 and Class 12 (Extra) Japan’s Economic Development III Post-war Economic Recovery and Accelerated Growth (1945~69): A Closer Look at Its Specific Causes Specific Causes of Economic Recovery and Accelerated Growth ➢ Causes IV Japan’s Economic Development and Contributive Factors ~Implication for Developing Countries~ Ad Hoc/Transient Factors ➢ 14 Factors Basic Factors ~Factors of “Social Absorptive Capacity”~ ➢ Factors Development Finance, MPP, VJU I Pre-conditions for Modern Economic Development in Japan State of Affairs before 1886 • Political and Economic Institutions The class system dissolved in 1869 Introduction of modern taxation from “rice paid as tax” to “money paid as tax” The central bank: namely, Bank of Japan was established in 1885 by Meiji Government • Human Resources The literacy rate was 45% for male and 15% for female in 1868.The public education started in 1872 and the enrollment ratio was as high as in UK by 1900 High moral human resources as corruption-free political leaders and entrepreneurs • Social/Economic Indirect Capital The road network between Edo (Tokyo) and 200 regions (local clans) was developed, the sea transportation networks of Japan Sea coast and Pacific Ocean coast as well The rice irrigation system covered all over Japan Telecommunication services started in 1870, postal services in 1871, and railway services in 1872 Development Finance, MPP, VJU I Pre-conditions for Modern Economic Development in Japan State of Affairs before 1886 • Agriculture Sector Agri-sector occupied 72% of total population → Supply sources of labor to modern industrial sector The domestic agri-technologies developed The average annual growth rate was 1.7% from 1878 to 1885 20% of agri-products were traded in the market→ Development of merchandizing and distribution The class system dissolution (1869) and liberalization of land trade (1872) → Free movement of farmers (labor forces) • Manufacturing Sector The textile industries (cotton and silk production) emerged with domestic technological improvement of European technologies→ e x Tomioka silk filature factory Nationalization of machinery and metal industries, then their privatization The growth rate of the sector 3% on an average from 1878 through 1885 • Commerce and Finance Sector The commercial sector was fairly developed during Edo period → Merchants and bankers/brokers in 200 clan states Bank of Japan (1885)’s positive impact on finance and commerce Introduction of modern company systems; e x “limited company system” in 1899 Development Finance, MPP, VJU II Long-term Historic View of Japan’s Economic Development Long-term Economic Growth ~A Comparative View~ • Average growth rate of national income and Per Capita Income were 3.6% and 2.5%, respectively The highest growth rate among the then developed countries (see Table next slide) • The Japan’s Per Capita Income in 1886 was 60% of UK or 29% of USA in 1886 But in 1999, it jumped up to $35,715, while USA $34,049 and UK $24,548 ➢ Why the Japanese economic performance was that remarkable? It is said that the “Late-comer’s Advantage” as well as satisfactory pre-conditions for modern economic development, which are closely related to “Social Absorptive Capacity” worked well for Japan’s successful economic performance Development Finance, MPP, VJU Table Long-term Economic Growth, Population Growth and Per Capita Income Growth (International Comparison) Country Japan USA Canada Sweden Australia Denmark Norway Italy Germany Netherlands Switzerland UK France Belgium Period 1885/89-1963/67 1834/43-1963/67 1870/74-1963/67 1861/69-1963/67 1861/69-1963/67 1965/69-1963/67 1865/69-1963/67 1895/99-1963/67 1850/59-1963/67 1860/70-1963/67 1910 -1963/67 1765/85-1963/67 1831/40-1963/67 1900/04-1963/67 Years 78 125.5 93 100 100.5 98 98 68 110.5 100.5 55 180.5 128.5 63 Annual Growth Rate G(Y) G(N) G(Y/N) 3.6 1.1 2.5 3.6 1.6 3.5 1.8 1.7 3.2 0.6 2.6 3.2 2.2 2.9 1.9 2.8 0.8 2.8 0.7 2.1 2.7 1.7 2.5 1.3 1.2 2.3 0.8 1.5 2.2 1.2 0.3 1.7 1.9 0.5 1.4 Note: G(Y) Economic Growth Rate, G(N) Population Growth Rate, G(Y/N) Per Capita Income Growth Rate Source: Minami (2002) Development Finance, MPP, VJU II Long-term Historic View of Japan’s Economic Development Cyclical Economic Growth Swings vis-à-vis Economic Events Before WW II (Figure and Table 2) • 1885-96 Upswing Period in Growth Rates • 1897-1903 Downswing Period in Growth Rates • 1904-18 Upswing Period in Growth Rates • 1919-28 Downswing Period in Growth Rates • 1929-36 Upswing Period in Growth Rates ➢ Economic events during each period above should be referred to the main text handout Development Finance, MPP, VJU Figure Japan’s Long-term Economic Growth Development Finance, MPP, VJU Table Japan’s Economic Growth, Population Growth and Per Capita Income Growth Period 1989-1900 1901-1910 1911-1920 1921-1930 1931-1938 (1889-1938) 1950-1960 1961-1970 1971-1980 1981-1990 1991-1997 (1950-1997) Economic Growth Rate 2.8 2.14 3.75 2.5 4.88 3.13 8.04 9.89 4.64 3.93 2.15 6.01 Population Growth Rate 0.96 1.16 1.28 1.43 1.2 1.19 1.28 1.09 1.16 0.55 0.3 0.92 Per Capita Income Growth 1.84 0.98 2.47 1.07 3.68 1.93 6.76 8.8 3.52 3.37 1.85 5.09 Source: Minami (2002) Development Finance, MPP, VJU II Long-term Historic View of Japan’s Economic Development Cyclical Economic Growth Swings vis-à-vis Economic Events After WW II (Figure and Table ) • 1945~1956 Downswing Period in Growth Rates ~Post-war Recovery Period~ ▻ The expansionary policy employed to reconstruct the war-torn country: “Priority Production System (1946)”, “Reconstruction Finance Bank (1947)” As a result, inflationary trend emerged ▻ Dodge’s Line (Fiscal Retrenchment Policy & Tight Money Policy) → Inflation was controlled, yet production dropped and unemployment surged ▻ Korean War (6/1950~6/1951): War demand saved Dodge’s Line problems ▻ LARA, UNICEF, CARE, GARIOA/EROA and World Bank assistance ▻ Economic Planning Agency was established (1955) “Five Year Economic Selfsupport Plan (1956-60)” in 1955, “New Long-range Economic Plan (1958-62)” in 1957 (Appendix: Japan’s Economic Dev Plans after W.W.II) Development Finance, MPP, VJU 10 Table Japan as Recipient ~Foreign Assistance to Japan~ Total Amount of Aid in US$ (and J¥) In terms of Today's Price of Total Amount of Aid in US$ (and J¥): An Estimate Contents of Aid Period of Aid LARA1 Aid Foods, clothes, textile, medicine, choes, soap, cotton and so on 1945 - 1956 $1.1 billion (J¥40.0 billion) $22 billion UNICEF2 Aid Skim milk, raw coton and so on 1949 - 1964 $18 million (J¥6.5 billion) $360 million (J¥130 billion) CARE3 Aid Foods, clothes, the necessaries of life, medicine and so on 1948 - 1955 $50 million (J¥18 billion) $1.0 billion GARIOA4 The necessaries of life such as foods, fertilizer, medicine and so on 1946 -1951 $1.6 billion (J¥567.9 billion) $32 billion (J¥11.36 trillion) EROA5 Industrial raw materials and capital goods such as machines and equipment 1946 -1951 $286 million (J¥102.8 billion) $5.7 billion (J¥2.1 trillion) World Bank 31 loan agreements for 34 infrastructural and industrial projects 1953 - 1966 $862.9 million (J¥311 billion) $17.3 billion (J¥6.2 trillion) LARA stands for Licensed Agencies for Relief of Asia UICEF stants for United Nations International Children's Emergency Fund CARE stands for Cooperative for American Relief Everywhere GARIOA stands for Government Aid and Relief in Occupied Areas EROA stands for Economic Rehabilitation in Occupied Areas Development Finance, MPP, VJU (J¥800 billion) (J¥360 billion) 11 II Long-term Historic View of Japan’s Economic Development • 1957~69 Upswing Period in Growth Rates ~Accelerated Growth Period~ ▻ Some 10% of annual growth rate throughout the period due to high investment ratio of 30% with imported technologies and equipment ▻ Industrial promotion policy, import liberalization policy and export promotion policy resulted in export increase ▻ Slow capital liberalization policy lasted from 1950 to 1964; concerns over foreign capital invasion (FDI) ▻ JETRO was established in 1954 and exchange rate was kept at ¥360/$ ▻ Government administrative guidance on promotion of basic industries, realignment of excessive competition among firms and so on ▻ “Income Doubling Plan (1961-70)” was formulated in 1960 ▻ Acute labor shortage problem and inflationary trend sneaked in Development Finance, MPP, VJU 12 II Long-term Historic View of Japan’s Economic Development • 1970~75 Downswing Period in Growth Rates ▻ In 1970, US B/P situation was worsened and IMF system was collapsed “Fixed exchange regime” was replaced by “Floating exchange regime” ▻ Japanese Yen was devalued from ¥360/$ to ¥308/$ in 1971 ▻ Japanese government employed the easy money policy to avoid recession ▻ Japanese exports did not drop and excessive liquidity problem together with strong inflationary pressure surged ▻ The (first) oil crisis (1973) caused hyper-inflation in 1973-74 The tight money policy was exercised and inflation ceased, yet the economic activities slowed down, which in turn solved labor shortage problem Development Finance, MPP, VJU 13 II Long-term Historic View of Japan’s Economic Development • 1976~87 Upswing Period in Growth Rates ~Steady Growth Period~ ▻ The tight money policy ended in 1975 and the expansionary fiscal policy was introduced in 1977 ▻ Exports did not drop The economy experienced steady growth rate of 3% to 5% with stable prices and low unemployment rates ▻ In 1976, the current account of B/P turned into surplus and since then the surplus expanded Foreign exchange reserves increased ▻ The second Oil Crisis (1978/79) did not affect the above trend ▻ In 1985, “The Plaza Accord” was reached, which resulted in ¥150/$ ▻ Government did not raise the Official Bank Rate at 2.5%, which lead to the entrance of “Bubble Economy” Development Finance, MPP, VJU 14 III Post-war Economic Recovery (1945~56) and Accelerated Growth (1957-69): A Closer Look at Its Specific Causes Specific Causes of Economic Recovery and Accelerated Growth (1) Recovery Demand from War Damages (2) Korean War Demand (1950 ~ 51) (3) Post-war Democratization (4) Expansionary Economic Policies (5) Decrease in Defense Expenditure (6) Imported New/Advanced Technologies and Equipment (7) Full Employment Policy Pursued by Developed Countries Development Finance, MPP, VJU 15 IV Japan’s Economic Development and Contributive Factors ~Implications for Developing Countries~ Ad Hoc/Transient Factors (1) Priority Production System, (2) Reconstruction Finance Bank, (3) Fiscal Retrenchment Policy and Tight Money Policy, (4) Expansionary Economic Policies (after Dodge’s Line), (5) Korean War’s Special Demand, (6) Foreign Assistance (from Emergency Assistance to Reconstruction Assistance), (7) Establishment of Economic Planning Agency and Three Development Plans, (8) Strategic Industries’ Promotion Policy, and Imports of Western Technologies and Equipment, (9) Industrial Protection Policy, (10) Import Liberalization Policy, (11) Foreign Capital Liberalization Policy, (12) Export Promotion Policy vis-à-vis Full Employment Policy by the West, (13) Japanese Government Administrative Guidance and (14) Democratization of Economic and Social Institutions Development Finance, MPP, VJU 16 IV Japan’s Economic Development and Contributive Factors ~Implications for Developing Countries~ Basic Factors ~ Factors of “Social Absorptive Capacity” ~ (1) Disciplined Political Leaders (2) Efficient and Effective Government Administration (3) Entrepreneurs’ Positive Attitude toward Technologies & Equipment (4) Quality Engineers (5) Hard-working Laborers (6) Fairly-developed Social/Economic Infrastructure (7) Fairly-developed Financial System (8) Fairly-developed Distribution System These factors had been consolidated over a long period of time since 1886 Development Finance, MPP, VJU 17 Appendix: Japan’s Economic Development Plans after World War II Plan and (Result) Name of Plan Planning Period (FY) Objectives Growth Rate in % (annual average) Unemployment Rate External Balance (Current in % (annual Inflation Rate in % (annual average) Accounts) in the Final Year (US$ average) 100 million) Five Year Plan for Economic Self-Support 1956-60 Self-support of the economy and full employment 4.9 (8.8) 1.0 (1.5) n.a (1.8) (-0.1) New Long-Range Economic Plan 1958-62 Maximizationof growth, improvement of national living, and full employment 6.5 (9.7) n.a (1.3) n.a (3.6) 1.5 (-0.1) Doubling National Income Plan 1961-70 Maximizationof growth, improvement of national living, and full employment 7.8 (10.0) n.a (1.2) n.a (5.8) 1.8 (23.5) Medium-Term Economic Plan 1964-68 Rectifying imbalances 8.1 (10.1) n.a (1.1) 2.5 (5.0) (14.7) Economic and Social Development Plan 1967-71 Balanced and steady economic development 8.2 (9.8) n.a (1.3) 3.0 (5.7) 14.5 (63.2) New Economic and Social Development Plan 1970-75 Construction of admirable society through balanced economic growth 10.6 (5.1) n.a (1.9) 4.4 (10.9) 35 (1.3) Basic Economic and Social Plan 1973-77 Promotion of national welfare, and promotion of international cooperation 9.4 (3.5) n.a (2.1) 4.0 (12.8) 59 (140.0) Economic Plan for the Second Half of the 1970s 1976-80 Realization of a richer national life and stable development of Japan's economy 6.0 (4.5) 1.3 (2.1) 6.0 (6.4) 40 (-70.1) Development Finance, MPP, VJU 18 New Economic and Social Seven-Year Plan 1979-85 Shift to a satable growth path, enrichment of quality of life, contribution to the development of the international economic community 5.7 (3.9) 1.7 (2.6) 5.0 (3.6) Roughly bsalanced basic accounts (550) Outlook and Guidelines of Economy and Society in the 1980s 1983-90 Formation of peaceful and stable international relations, forming an economy and society full of vitality, ensuring a secure and affluent people's life 4.0 (4.5) 2.0 (2,1) 3.0 (1.6) Internationally harmonious balance (337) Economic Management within a Global Context 1988-92 Reducing the massive external imbalance and contributing to a better world, creating diverse lifestyles and better quality of life, promationg balanced economic and social development nationwide 3.75 (4.0) 2.5 (2.2) 1.5 (2.2) The ratio current account surplus to GNP shall reach internationally harmoneous levels by the end of the plan period (1,259) Five-Year Economic Plan Sharing a Better Quality of Life around the Globe- 1992-96 Reforms towards a better quality of life, co-existing with the global community, establishing the foundation for development 3.5 (1.0) 2.25 (3.2) 2.0 (0.8) Internationally harmonious balance (1,250 in FY 1994) 1995-2000 Creation ofa a free and enegetic society and economy, creation of a prosperous economy and society in which people can feel secure and pursue fuller lives, participation in the management of the global community (n.a.) 2.75 (n.a.) 0.75 (n.a.) Sufficiently significant contraction (n.a.) Social and Economic Plan for Structural Reforms -Towards a Vital Economy and Secure Life- Source: (Former) Economic Planning Agency of Japanese Government Development Finance, MPP, VJU ✍ 19 .. .Class 11 and Class 12 (Extra) Japan’s Economic Development III Post-war Economic Recovery and Accelerated Growth (1945~69): A Closer Look at Its Specific Causes Specific Causes of Economic. .. Minami (2002) Development Finance, MPP, VJU II Long-term Historic View of Japan’s Economic Development Cyclical Economic Growth Swings vis-à-vis Economic Events After WW II (Figure and Table )... Administrative Guidance and (14) Democratization of Economic and Social Institutions Development Finance, MPP, VJU 16 IV Japan’s Economic Development and Contributive Factors ~Implications for Developing