History and Perspective of Japanese Economy (1854-2000)

University of Mainz, Nihon University

SoSe 2002

SEMINAR

The Japanese Economy

First Topic

History and Perspective of Japanese Economy (1854-2000)

CONTENTS

1. Introduction 1

2. History of the Japanese Economy 2
2.1. The Tokugawa Period (1603-1868) 2
2.2. The Meiji Era (1868-1912) 4
2.3. The Japanese Development up to the End of World War II (1912-1945) 7
2.4. The American Occupation (1945-1952) 9
2.5. Period of Rapid Growth (1950-1973) 11
2.6. The Effects of the Two Oil Crises (1973-1983) 12
2.7. Japan´s Bubble Economy of the 1980s 13
2.8. The Lost Decade (1990-2000) 14

3. Perspective of the Japanese Economy 16
3.1. Necessary Reforms for the Future 16
3.2. Japan´s New International Role 17

4. Conclusion 17

Bibliography 19

Figures

1 Industrial Structure and National Income Ratio 22
2 Industrial Structure and Employment Ratio 22
3 Export Structure 1890-1965 23
4 Import Structure 1890-1965 23
5 Japan´s Exports and Imports of Cotton Clothes 24
6 Real Military Spending 25
7 Annual GDP Growth of Japan (1956-2000) 26
8 Japan´s GNP (1893-1989) 27
9 Financial and Macroeconomic Conditions in the 1990s 28
10 Unemployment Ratio in Japan 1991-2002 29

Tables

1 Average Annual Growth Rates in Real GNP and Population 1885-1995 in percent 30

1. Introduction

Japan with its 126.8 million inhabitants is the unique example of a .Non- Western. economy achieving an equal standard of living with other Western countries. On top of that, the Japanese economy is the second largest in the world. The Gross Domestic Product (GDP) Japans has been $ 4.7 trillions in the year 2000. This makes Japans economy about 2.5 times larger than the German one . measured in Dollars.¹ In the light of Japans extraordinary role in world economics, it would be very interesting to look at the background of Japans historical development of economics. Unfortunately there is non or little knowledge in Germany about this. The picture, we have here, is often influenced by clichés such as the Japanese imperialism, the pervasive government bureaucracy and the impressing Japanese economic growth. However, the economy in Japan is no longer growing. There are structural problems. We have to ask the question how the ´Japanese Model´ can go on. I will therefore give an overview about the Japanese economy and its possibilities in the future.

The start of modern economic growth in the 1870s is closely connected with the opening Japans to the rest of the world. To understand this development, we have to take a closer look at the economic history before 1854. Thus, my starting point of the historic development is the so-called Tokugawa period. After that, I will talk about the different phases of the Japanese economic history up to this date. Out of the sheer volume of the single phases, we can only consider the most important events, and determining factors of any one development. After we have viewed the historical phases, we will introduce the perspectives of the Japanese economy. We will on one hand look at the future development within Japan and on the other hand at the economic possibilities internationally.

2. History of the Japanese Economy

2.1. The Tokugawa Period (1603-1868)

After many civil wars toward the end of the sixteenth century, Ieyasu Tokugawa (later called Shogun) emerged in 1603 as the national leader. For more than 250 years, the Tokugawa dynasty reigned Japan from Edo (which in 1868 became Tokyo). This political system had to thank Ieyasu Tokugawa and his dynastic heirs for its stability, who established the Baku-han system. This system was similar to the feudal system of Continental Europe. It included the Shino-Kosho (a kind of caste system), the Sankin-Kotai (the alternating attendance of local lords in Edo) and the Sakoku (seclusion policy). These structures had far reaching influences on the economic development Japans, even into the Meiji Era.²

The caste system (Shino-Kosho) distinguished between four social classes: samurai (warriors with civil bureaucracy tasks), farmers (70-80 percent of the population), artisans and merchants. These social classes were differentiated between privilege, status and occupation. To which class one belonged was determined at birth and lasted a lifetime  With this, the system was blocking the exploitation of comparative advantages in choices of occupation.³

The local lords were required to alternate their residence yearly between their home domain and Edo (Sankin-Kotai). The families stayed the whole time in Edo to be used by the Shogun as dead-pledge for the case of a rebellion by the lords. To guarantee the alternation, they had to develop a system of roads and coastal waterways. Apart from that, there was a strong migration of people to Edo, as there lived Japans most wealthy families. Edo had become the city of the samurai and a major consumption center. The families financed their daily necessities with the land taxes paid in rice and these taxes were collected in the various domains of Japan. This rice was stored and sold in Osaka. There was even a rice future market in Osaka. Through this, Osaka became the city of merchants.

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1 World Bank (2001)

2 Ito (1997, p.8)

3 Flath (2000, p.23)