ECONOMIC HISTORY AFTER WORLD WAR II IN JAPAN, SOUTH KOREA AND SOUTHEAST ASIA
There has been significant growth in Asia in the 1960s, 70s, 80, 90s and 2000s. The average economic annual growth in East Asia from 1973 to 2003 was 8.5 percent, more than twice the global average of 3.5 percent. Growth has continued at a healthy clip despite the Asian financial crisis in 1997-98 and the Lehman Brother shock in 2008-2009.
Emerging Asia's average growth rate of almost 8 percent over the 1990s and 2000s---three times the rate in the rich world. According to the Asian Development Bank: “Asia's decades-long march to prosperity, the study said, is being led by seven economies with more than three billion people between them--- China, India, Indonesia, Japan, South Korea, Thailand and Malaysia. Much of the growth has been fueled by exports. [Source: Frank Zeller, AFP, August 1, 2011]
Economic Reforms in Japan After World War II
After World War II, large zaibatsu included Mitsubishi and Sumitomo were broken up into hundreds of smaller companies and some of their heads were dismissed. Efforts to break up the zaibatsu---the the large industrial conglomerates that provided the hardware for Japan's military expansion---after World War II were resisted not only by the zaibatsuthemselves by conservative elements in the MacArthur headquarters.
Other economic reforms included the passage of Deconcentration Law and the establishment of the Fair Trade Commission. But in the end a desire by the United States to keep Japan as a good friend an unwillingness to rock the boat too much kept the “cordial oligarchy” between the government and the zaibatsu in place.
The economy was based more on a government-supported and corporation-patronized “social market” than a “free-market” like that of the United States. Government policies shifted vast amounts of wealth to the middle class. Labor was absorbed into corporate governance with an emphasis on employment security.
The revolutionary land reform bill that MacArthur pushed through the Diet allowed America-backed government to seized land and abolished the titles of the extensive aristocracy. The bill literally ended feudalism in many parts of Japan overnight and allowed many Japanese to own land for the first time.
The Japanese aristocracy was stripped of its land, wealth and status according to the terms of the post-war constitution. Large landowners were forced to sell their land to the tenants who worked it at a very reasonable price. On man from a noble family told the Washington Post, “After the war my mother had to cook for the first time." MacArthur also helped smashed monopolies, break up the large corporations and prop up the unions. The zaibatsu were stripped of the powerful families that ran them but continued to exist.
Junichi Maruyama economic news editor of the Yomiuri Shimbun wrote: “The war put an end to the "bloc economy system" whereby world powers had kept their colonies enclosed within their own trading blocs, while setting up tariff barriers to keep external suppliers from soaking up internal demand. Instead, the world economy shifted to the Bretton Woods system of monetary management, with reduced tariff barriers and free trade as its foundations....Japan achieved remarkable reconstruction and rapid economic growth as a trading nation in the postwar years, chiefly due to the major changes in the framework of the international economy.”
Japanese Economy in the 1950s and 60s
In 1950, the per capita income of Japan was equal to that of Ethiopia and Somalia and 40 percent less than India. People were still dying of starvation. Photographs at Yasukina Shrine from the mid 1940s show families standing in front of shop windows "looking longingly" at toasters and refrigerators. In the 1950s, U.S. Secretary of State John Foster Dulles said, Japan "should not expect to find a big U.S. market because the Japanese don't make things we want."
After the end of World War II Japan strived to increase coal supplies to rebuild its industrial base. After securing energy supplies around the 1950s the national goal shifted to strengthen export capabilities.
In the 1950s and 1960s, Japanese bought black and white televisions, washing machines with ringers and ice candy from vendors roaming the streets on bicycles. Many people went out to the movies for entertainment.
The mass production of radios began soon after the first radio broadcasts in 1925. Televison mass production began in 1953. In the 1960s, the goal of many Japanese families was to obtain the “the three divine appliances”: the television, the refrigerator and washing machine. It wasn’t long before this was replaced by obtaining the three Cs: a color television, a car and a cooler (air conditioner).
Birth of the Japanese Economic Miracle
A recovery program for Japan set up by the United States restricted imports, provided loans and encouraged personal savings and capital investment.
Japan expert Ian Buruma wrote in Newsweek that U.S. Secretary of State George Marshall decided that instead of setting up a Japan Marshal plan "Japan should be allowed to export is way out of trouble, and given the tools to do so. Vast amounts of U.S. taxpayers' money were transferred to rebuild Japanese industry. Japanese welfare spending was reduced, worker's wages cut and raw materials allocated to promote export jurisdiction over domestic consumption...And the task of rebuilding Japanese industry fell to those who knew best how to do it, the same bureaucrats and politicians who ran the Japanese war economy."
"Japanese liberals and leftist felt betrayed,' Buruma wrote. "But conservatives were delighted." The American plan "enabled them to build what they had always wanted: Japan as an economic superpower, monopolized by an elite of conservative politicians, bureaucrats and industrialists. The 'Marshall Plan' for Japan, in other words, set up Japan Inc."
The Korean War period was a boon for the Japanese economy. American ships were serviced in Japanese ports, machines were repaired, support facilities were established. Those who made a lot of money were fairly good at letting their wealth trickle down so that it improved the lives of ordinary Japanese not just the elite.
Rise of the Japanese Economy
With Washington taking care of security, Japan was able to focus its energy on becoming an economic powerhouse. By 1951 the Japanese gross national product had revived to pre-war levels, and Japanese businessmen had begun roaming through American factories with little supervision, picking up technical knowledge.
Japan's economic ascension had three distinct stages. The first stage was guided by the "priority production system" of the 1950s that stressed increasing coal and steel output and developing heavy industries like shipbuilding and timber making. In the second stage in the 1960s and 70s Japan focused on producing consumer products and automobiles for export markets. The third stage was the development of knowledge-based products like computers and electronics. [Source: Ian Buruma, Newsweek]
The Japanese went through a stage similar to the one that China is going through now in terms of copying and piracy. In the early stages of their development Japanese companies copied many American and European products. These companies and the Japanese government became more concerned with intellectual property concerns when Japanese companies needed laws to protect their patents and copyrights.
Japan’s talent for monozukuri (“thing making”) has been a key to its success. Many businesses got their start in one room neighborhood factories, relying on cheap labor, that made textiles, toys, tools and cheap electronic items. The first Sony portable transistor radio appeared in 1955 and the first Barbie dolls were produced in Japan in 1959.
Early Japanese products were ridiculed as cheap imitations and many companies made awful mistakes. Datsun, for example, named its first American cars the "Bluebird," as in the "bluebird of happiness." The car failed miserably in a market dominated by Thunderbirds, Mustangs and Barracudas.
Prime Minister Shigeru Yoshida (1878-1967) led Japan during the postwar period. He was known as the “postwar one man” prime minister. He established a security relationship with the United States and laid the foundation for the postwar recovery by pursuing a “Light armament and economy-first policy.”
Rapid Growth in Japan in the 1960s
In 1960, Prime Minister Hayato Ikeda, regarded as Japan's most charismatic postwar prime minister, challenged Japan to double its income in the next decade, ushering in a long period of growth that didn't stall until the oil crisis of 1973. The 58 month period of sustained growth between November 1965 and July 1970 is known as the “Izanagi” boom.
Under Ikeda’s Income Doubling Plan the national GNP was to be doubled through a program in which consumption was boosted by cutting taxes, bolstering welfare, raising farm prices and reducing income equality. In the 1960s even American soldiers could start valuable collections of Japanese art with their meager salaries and raise families thanks to the favorable value of the yen ( ¥360 to the dollar).
Through the 1960s, Japan had a growth rate of 11 percent (compared to 4.6 percent in West Germany and 4.3 percent in the United States and comparable to the growth rates China has achieved in the 1990s and 2000s), fueled by vigorous investment of private industry in new plants and equipment; a high rate of saving by Japanese households, which provided banks with funds for investment; and the availability of an abundant labor force with a high level of education.
Many ordinary Japanese aspired to get their hands on the "three Cs"”a car, an air conditioner and a color TV. Between 1965 and 1970 the number of households that owned a car jumped from 1 in 20 to 1 in 5. By 1970, 19 out of 20 owned a television.
Protectionism by the United States allowed Japanese companies stop focusing on producing consumer goods and concentrate more on making big things like cars. By 1970, Japan was the third largest industrial nation in the world after the United States and the Soviet Union. Spurred by the Income-Doubling plan of 1960, Japan became the world’s second-largest economy, strong enough to weather the energy crisis and oil shock of the mid 1970s.
Japan surpassed Germany to became the world’s second largest economy in 1968. Japan had the world’s second-largest economy through the 1970s, 80s, 90s, 2000s until it was surpassed by China in 2010.
Oil Embargo and Growth in Japan in the 1970s and 80s
Japan went into a severe recession in 1974 and 1975 after the Arab oil embargo. GDP shrunk 0.5 percent in fiscal 1974 and 4 percent in fiscal 1975 with the worse drop of 13.1 percent occurring the January-March 1974 quarter.
In 1973 the Japanese economy was suffering an inflation spiral caused mainly by surging land prices triggered by a nationwide development boom. In October of that year, war broke out in the Middle East and Arab oil-producing nation cut supplies to countries that supported Israel. Oil prices quadrupled, consumption declined and high raw material costs hit companies hard.
Again in 1980 Japan suffered from high inflation and recession mainly due to large hikes in the price of imported oil. The exchange rate reaches 360 yen to the dollar in the 1970s.
Even so economic growth continued at a robust rate through the 1970s and 80s, with the growth in the 1980s about 5 percent a year, about half the growth rate that China experienced in the 2000s. With the help of the oil embargo Japan captured 21 percent of the world's automobile market by the mid 1970s.
By the 1980s, Japan had built up such huge trade surpluses and the yen had become so strong that Japanese businessmen were buying up properties all over the world and Japanese tourists were fanning out to every corner of the globe. Many people thought Japan was poised to dominate the world economically and Japan bashing became a popular conversation topic in the United States and elsewhere.
South Korea Starts on the Road to Become One of the Four Tigers of Asia
The Four Tigers---South Korea, Taiwan, Hong Kong and Singapore---raised the per-capita incomes sixfold between 1965 and 1995. Indonesia, Malaysia and Thailand tripled their income levels in the same period.
In 1953 industrialized North Korea was richer than largely agricultural South Korea. In 2002, South Korea had a GNP or $505 billion while North Korea’s was only $15 billion. In 1960, South Korea was still one of the poorest countries in Asia. The per capita income of South Korea in 1962 was $87. Pakistan, Nigeria and Ghana were richer. Now South Korea has a per capita income many times higher than these countries and many children attend university.
Before 1962, 80 percent of foreign investment in South Korea was foreign aid, mostly from the United States. Peace Corp workers were sent to Korea. In the 1960s, South Korea made wigs and false teeth mainly for export. At that time South Korea was still emerging from the Korean War. There were some textile factories but basically no manufacturing, no banks, no real businessmen and no people who spoke foreign languages other than Japanese.
The U.S. played a significant roles in South Korea's economic growth. between 1945 and 1971 the U.S. lent South Korea $3.8 billion. The Vietnam War was a big boost. Industries were launched to supply the American military.
Through export-led industrialization, South Korea transformed itself rom a poverty-stricken nation into an economic powerhouse faster than perhaps any other country. The road to development in Japan, Hong Kong, Singapore, Taiwan and South began with sweatshops that produced garments and shoes and light assembly plants that produced toys and cheap electronics.
Rapid Development in South Korea Under Park Chung Hee
Park Chung Hee was the right man at the right time for South Korea. He decided that South Korea could prosper on a policy of export-driven growth with heavy investment in technological-intensive industries such as shipbuilding, steel, petrochemicals and electronics. Within weeks after taking office he established a government body to provide direction for the economy.
When Park Chung-hee became the leader of South Korea in 1961, the country was among the poorest in Asia. Per Capita income was only $100. It suffered from rising unemployment decreasing growth and dwindling U.S. aid. Many houses at that time then had no electricity, running water or bath tubs. People rarely ate meat and few could afford sewing machines, shoes, bicycles or tractors. People walked around in cold weather with rice straw wrapped around their feet. In some places women were only rarely allowed to leave the house and those that did wore veils like Muslim women.
Park laid out a five year plan and put knowledgeable and able economists in charge. Under a kind of centrally-planned capitalism, the government decided which companies would produce what products and provided investment money in the form of low interest-loans. The government often made decision about pricing, wages and machinery purchases and protected the chaebols (large industrial conglomerates) from high labor costs, foreign competition, and even "excessive" domestic competition. The government also bailed out troubled chaebols by supplying money or transferring assets to another chaebol.
Guaranteed government assistance, the chaebols leaped into a plethora of industries in which they had little experience. This is how the chaebols developed into huge conglomerates with divisions in industries as diverse as construction, chemicals, electronics, cars, newspapers, shipbuilding and cars. With such strong bonds between government and industry, payoffs and bribes became an accepted part of doing business in Korea.
Realizing that foreign investment was key to growth, Park took the critical but highly unpopular step of normalizing ties with Japan, which led to an infusion of $800 million in economic aid ( a lot of money at the time). The move prompted huge demonstrations in Seoul and Park reacted by imposing martial law. In 1965, he agreed to send troops to Vietnam to help the Americans fighting there. This was generously rewarded with more economic aid and military contracts. Revenues from the Vietnam War were th single largest source of foreign exchange in South Korea and this money laid the cornerstone for growth that would continues almost unabated for three decades.
Rapid Growth in South Korea
Technology and expertise from Japan and money from the United States and Japan helped jump start South Korea's economic boom. The goals of Park Chung Hee’s five year plans were often exceeded. Park rewarded companies that built bridges, buildings and roads ahead of schedule and ordinary Koreans pitched in by developing a “hurry up” culture.
Textiles was the first industry to develop. During the period of economic expansion in the 1960s and 70s, many factories hired country girls, who lived in dormitories and worked for low wages. Howard Sochurek visited one factory that turned human hair bought from India and Indonesia into wigs. The hair arrived in large bags and the girls sorted it according to length and texture and then dyed, washed, and combed it. The most expensive wigs were hand sewn, while most were stitched by machine. Between 1964 and 1969 the money earned from exporting wigs jumped from $100,000 to $28,000,000. Most of the wigs, which cost $9 to make and sold for $50, ended up in the United States. [Source: Howard Sochurek, National Geographic March 1969]
Over time higher-tech manufacturing took hold in South Korea. In the 1980s, South Korea was leading manufacture of sports shoes and cheap textiles. These products are now made in China, Thailand and Indonesia while South Korea now manufactures semiconductors and other high tech products. Textiles and clothing accounted for about a third of exports in 1980 but only a eighth in 1995. Office machines and telecommunications equipment accounted for about 10 percent of exports in 1980 but 40 percent in 1995.
The Park government was plagued by corruption. His cozy relationship with the chaebols helped push the economy forward but it also created a business culture, greased by corruption, that endured long after he was gone and was partly blamed on South Korea's economic troubles in the late 1990s. One of Parks's biggest supporters was the Reverend Sun Myung Moon.
Japan Moves Into Asia in a Big Way
Japanese investment has played a critical role in transforming of Asia, particularly Southeast Asia, into a manufacturing export base for the world and helping economies in Southeast Asia grow.
In the 1970s, Japan was overflowing with cash and it began offering aid, making investments and building factories in Southeast Asia. After the so-called Plaza Accord of 1985 dramatically pushed up the value of the yen, many Japanese companies began moving their operations to Southeast Asia to take advantage of the huge supply of cheap labor in Southeast Asia. The countries of Southeast Asia responded by offering attractive investment terms.
The collapse of the bubble economy in Asia only increased the flow of money from Japan to Southeast Asia. Between 1992 and 1995, a fifth of Japan's foreign investment went into Asia. It was criticizing for being the first to invest in countries with authoritarian governments such as Myanmar and China. In 1993 Japan's trade surplus with the rest of Asia surpassed it surplus with the United Sates for the first time. In 1994, Japan was the largest investor in Asia, investing more than $74.7 billion in 1994 (compared to $45.7 by the United States).
Japanese Companies in Southeast Asia
Japanese corporations transformed the countries of Southeast Asia into one great production center. Japanese concepts of joint government business efforts to promote national strength, dismissed in the West, were embraced and applied throughout Asia and combined with the traditional Chinese way of doing things through networks often held togetehr b family, hometown and regional ties.
Japanese companies used cheap labor in Asian countries to produce goods for export and domestic consumption. Sony manufactured video cameras in Malaysia. Toyota opened plants in Vietnam and Thailand
By utilizing cheap labor in countries like Thailand and Malaysia Japan has also created a market for its goods now these people have money. Japan is almost creating markets for their products in Asian countries. More than 90 percent of the automobiles sold in Thailand and Indonesia are made in Japan.
Working against Japan is the fact that many Asian are emulating Japan's industrial policy of controlling access to their markets. As was true in Korea Japan initially profited from taking advantage of cheap labor but profited over the lobger term by selling high-end components and machinery to developing industries.
Economic Boom and High Growth in Thailand and Southeast Asia
Other foreign investors discovered Asia and the money became flowing in. Southeast Asian posted high growth figures through the 1980s and early 1990s that were attributed to high investment rates financed by high saving rates, rapidly improvng levels of education, the absorption of lare numbers of peasant farmers into a modern economy, hard work, and successful government iniiatives.
The countries in Southeast Asia based their growth strategies on "export-driven" formulas that worked in Japan, South Korea, Taiwan, Singapore and Hong Kong.
The Thai economy began taking off in 1970s and kept growing and growing. The GNP quadrupled between 1970 and 1990 and growth averaged 7 percent and per capita incomes tripled between 1965 and 1995 (figures equaled in Malaysia and Indonesia). By contrast, the per-capita incomes increased sixfold between 1965 and 1995 in the Four Tigers---South Korea, Taiwan, Hong Kong and Singapore.
In the late 1980s, Thailand was on it way to joining the tigers like Taiwan and South Korea. Thailand had the world's fastest-growing economy for about a decade in the late 1980 and early 1990s. The growth rate was 8 percent between 1985 and 1995.
The Thai economy was fueled by cheap labor and light industry such as computer manufacturing and assembly. There was no shortage of construction jobs. Thailand became a leading exporter of rice, Southeast Asia's largest producer of cars (from Japanese-owned plants).
A sizable middle class and generation of yuppies was created during the boom years in the 1980s and early 1990s. The sales of new Mercedes rose from 5,000 vehicles in 1992 to 14,082 in 1995, when Thailand became the eighth largest market for German cars and largest consumer of 12-year-old Scotch. At one time 1 million Thai tourist abroad spend more than 6 million foreign visitors in Thailand.
At the end of 1996, foreign reserves exceeded $32 billion, unemployment was at 2 percent and inflation was 4.9 percent. Thailand was being hailed as the next Asian tiger
Problems with High Growth
In a 1994 Foreign Affairs called The Myth of Asia's Miracle, Paul Klugman wrote that economic growth in Asia had more too do with cheap labor and the move from an agricultural society to an industrial one than investment. Investors read this as sign that maybe growth and limits and it was time to get out while the going was good.
Cronyism, corruption and waste were rife when businesses in Asia were successful and did slow the East Asian miracle. While the sales of Mercedes and other cars skyrocketed, little money flowed into road improvement and education.
Countries were consuming more than they produced. The money was spent on speculative real estate investments buy people in seach of quick profit and speculative things like office towers and golf courses rather than retooling and upgrading factories with long term interests in mind. "The flow of foreign money really killed s. " one Thai financial analyst told Time. "It was massive, it was undisciplined on all sides, and it was unregulated."
Growth and Poverty Reduction
Ajay Chhibber, the U.N. assistant secretary general, wrote in the Daily Yomiuri, “Spending on social protection can prevent people from falling into poverty and can increase consumption. This helps the overall business outlook and keeps growth up, thereby bringing positive change to a very large number of poor people. Rapid growth is unquestionably necessary to substantially reduce poverty, but for growth to be sustainable in the long run, it should be broad-based and inclusive of a large part of the region's labor force. It is essential to strike a balance between stimulating investment and consumption, and meeting social sector needs of the 900 million living in poverty across the region. [Source:Ajay Chhibber, Daily Yomiuri, June 15, 2010. Chhibber is U.N. assistant secretary general, UNDP assistant administrator and director for UNDP's regional bureau for Asia and the Pacific. He holds a PhD from Stanford University and an MA from the Delhi School of Economics. He was born in India.]
“Unfortunately, Asia's spending on social protection is relatively low compared to other areas of the world. For the region as a whole, only 30 percent of the elderly receive pensions, just 20 percent of the unemployed and underemployed have access to labor market programs, and only 20 percent have access to health care assistance. [Ibid]
“Fortunately, social protection schemes are multiplying in the region. In the late 1990s, South Korea introduced an Employment Insurance System with preventive measures for employment stabilization and promotion. Thailand introduced a universal 30 baht Health Insurance Scheme where the insured receive the same quality of medical care as offered by other health schemes. Over the years, Thailand has added nearly 14 million people to the system and achieved near-universal coverage without compromising access for those with prior coverage. China and Vietnam are also rolling out extensive rural health insurance programs. Since the food, fuel and financial crises, Indonesia adopted cash-transfer schemes for the poor. To ease fiscal and financial pressures, they slashed subsidies on fuel that mainly benefited the rich. The Philippines has expanded its conditional cash transfer program. [Ibid]
“However, India has adopted an ambitious social-protection scheme of a different kind called the Mahatma Gandhi National Rural Employment Guarantee Act. It is an original program backed by national legislation to enhance income security by providing at least 100 days of guaranteed wage employment per year to every household whose adult members volunteer for unskilled manual work. If work cannot be found, then compensation must be paid by the state. [Ibid]
“Last year this scheme provided 46 million households with employment, and 22 billion days of employment have been generated to date. Close to half of those employed were women, and more than half were from marginalized groups. Clearly, the benefits are reaching those for whom the program was designed. Backed by political will and the necessary budgetary resources, India has created the world's largest "cash for work" scheme. [Ibid]
“By working an extra 100 days per year, there is more money for food, for health care and for people to support themselves. Besides monitoring and supporting the management of this program, the U.N. Development Program has helped improve transparency, delivery of social services and access to financial services. For instance, workers can receive wages at their homes via a fingerprinting device connected to a mobile phone. A simple mobile phone-based system also allows workers to access information about their accounts by sending a text message. [Ibid]
“This program acts as a safety net and lifeline for laborers and small and marginal farmers who would otherwise be adversely affected by job losses and reduced pay due to the economic crisis. It has successfully helped India's very poor survive the immediate impact of the global economic crisis. [Ibid]
“This is one model that could be adapted to local needs in other countries, not just as an emergency relief measure, but to provide impetus for sustainable development. It has also shown other benefits. The predominant focus of the program is on natural resource regeneration, with projects related to drought-proofing and irrigation--such as planting trees, building irrigation canals and watersheds, and desilting ponds--thus boosting agriculture and improving food security.” [Ibid]
Image Sources: Wikimedia Commons
Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, NBC News, Fox News and various books and other publications.
© 2008 Jeffrey Hays
Last updated November 2012