By Mark J. Ravina, University of Texas at Austin
The era between 1955 and 1993 is considered Japan’s long postwar period. It’s a period of remarkable economic and political continuity; the government explicitly targeted balanced growth—wages as well as corporate profits—and small and medium businesses as well as massive corporations. That growth produced a tight labor market, so wage earners saw their incomes steadily grow.
Dissolving Massive Corporations
Initially, the United States was determined to break down the industrial combines known as zaibatsu.
A handful of massive conglomerates—such as Mitsui and Mitsubishi—controlled a majority of key industries, including manufacturing and banking. And those corporations used their enormous power to favor their own subsidiaries and drive down the profits of small and medium-sized rivals. Critics argued that they also exerted downward pressure on wages, stifling the emergence of a robust middle class, and that, in turn, weakened Japanese democracy.
Yet, the zaibatsu escaped the occupation largely unscathed. Why? Much like reparations, the idea of breaking up the zaibatsu collapsed because of the Cold War. Also, the zaibatsu were savvy at pre-empting some reforms. They offered to partially dismantle themselves, knowing they could reassemble after the occupation.
So, How did a vibrant middle class emerge despite the concentrated power of the zaibatsu? Part of the answer is Japanese domestic policy. But good fortune was also a factor. Almost by accident, US policy set the stage for decades of strong growth. Part of the basis for that growth was a 1948 US plan called the Dodge Line.
Solutions for Reducing the Inflation
Early in the US occupation, the Japanese government was running up huge budget deficits. One result of this was a double-digit inflation. In 1948, the US demanded that Japan get inflation under control. Specifically, the US banker Joseph Dodge insisted on massive reductions in government spending.
The explicit goal was to reduce consumer demand; in other words, to trigger a recession. Dodge—whose name was the basis of the Dodge Line—also proposed fixing the yen at a favorable rate for Japanese exports at 360 to the dollar. But first, inflation would have to come down.
Inflation did come down, but at the cost of a rise in bankruptcies and labor unrest. Japanese consumers and businesses couldn’t borrow in tighter credit markets. For example, the domestic market for Toyota automobiles collapsed.
This article comes directly from content in the video series The Rise of Modern Japan. Watch it now, on Wondrium.
The Stabilization of Economy
The Dodge Line seemed like it might destabilize Japan. But then North Korea attacked South Korea in June 1950.
Weeks later, the US Army asked Toyota if it could make trucks. And by late July 1950, Toyota had an order for 1,000 cargo trucks. The company stopped talking about layoffs and began paying its workers overtime.
In just one year, US orders for Toyota trucks reached 3.6 billion yen, the equivalent of about $100 million today. Total US ‘special procurements’ for the Korean War were more than $2 billion; about $20 billion today.
US military orders created a Japanese export boom, funded by the US taxpayer, not the Japanese budget. And almost every aspect of the Japanese economy surged. That was completely unplanned. But the results became a perfect starting point for decades of Japanese economic growth.
Politics in the Immediate Postwar Period
What about politics? The more immediate postwar period of the late 1940s was tumultuous. Elections in 1946 and 1947 brought a wave of change to Japanese politics. There were lots of new faces, as hundreds of politicians had been purged as militarists by occupation authorities.
In the immediate postwar period, three main parties emerged: The Socialist Party, Democratic Party, and the Liberal Party. All three parties won about a third of the vote in the 1947 national election. The socialists won the most by a tiny margin, and joined with the Democratic Party to create a government. Katayama Tetsu of the Socialist Party became prime minister for 10 months, beginning in mid-1947.
The Yoshida Doctrine Principles and Its Consequences
Japan’s enduring center-right coalition was comparatively pragmatic. At the core of that coalition was something called the Yoshida Doctrine, named after Yoshida Shigeru, who served as prime minister from 1946 to 1947, and again from 1948 to 1954. He articulated these principles:
Japan would side with the United States in the Cold War.
Japan would not attempt to revise Article 9 of the constitution, which prohibited postwar Japan from forming an army. Instead, Japan would accommodate US military bases in Japan, and rely on the United States for national security.
Japan would again become a world power but an economic power: rich and unarmed.
Later, after the outbreak of the Korean War, Yoshida had to resist US pressure to create a Japanese army. Although the United States had imposed Article 9 of the constitution on Japan, Secretary of State John Foster Dulles was pressuring Japan to rearm by 1950.
The Yoshida Doctrine thus rejected a core goal of the postwar Japanese far-right: revising the constitution and building a real military. But the doctrine also amounted to a rejection of the Japanese left, which wanted Japan to be neutral in the Cold War.
The good news was that the Japanese Empire 2.0 wouldn’t lead to another war. The bad news—for the Japanese—was that they would have US military bases forever. But overall, voters loved the bargain. And they voted for the LDP year in and year out until the 1990s.
Common Questions about the Economic Growth and Political Continuity During Japan’s Postwar Period
America was determined to dismantle the zaibatsu—massive industrial combines in Japan—because critics insisted that a prosperous Japanese middle class would never emerge if economic power was concentrated in the hands of a few big corporations.
The domestic policy during Japan’s postwar period played a key role in this success, but good fortune was another factor. Additionally, the United States provided the ground for decades of strong growth in Japan.
Early in the US occupation, and along with Japan’s postwar period, the Japanese government ran a budget deficit. The United States, therefore, called on Japan to control inflation. Japan needed to cut government spending, but the results were predictable: inflation fell but came at the cost of rising labor unrest and bankruptcies.