Hart-Landsberg describes the Japanese economic development after the second world war as “scarp and build”. What industries were promoted or scrapped?
The magical development of the Japanese economy after the Second World War cannot be described fully without a reference to the role of the United States in the internal industrial affairs of the country. Fearing that a poor Japanese population would turn to communism, the United States involved the Japanese government in the rapid restructuring of the economy, especially the industrial sector (Vestal 64).
One of the major aspects of the industrial reconstruction in Japan, which was supported by the US, was the scrapping of some industries and replacing them with others. First, the Japanese government began the rapid scrapping of light-manufacturing industries by encouraging the industries to move out of the country. For instance, cotton and textile producing plants and factories were moved from the country to East Asia, mainly in South Korea, ASEAN nations, and Taiwan (Burkett and Hart-Landsberg 111). This process took place between the 1950s and 1970s. This was followed by the exit of the synthetic textile manufacturers, which were relocated to a number of countries in the East Asian region in the 1980s. In addition, Japan involved aggressive scrapping of the labor-intensive electronic industry, especially radio, tape recorders, and television sectors (Burkett and Hart-Landsberg 111). These industries were also moved to East Asia.
Why did Japan scrap these industries?
This strategy was a major aspect of America’s efforts to prevent future conflicts with Japan. As mentioned earlier, the international affairs involving Japan and the US as well as the European nations were the main cause of the industrial reconstruction in Japan (Otsubo 127). For instance, Japan had previously been relying heavily on the light-manufacturing sector. In fact, this was the main source of the country’s manufactured exports. America was the main market for light products from Japan (Burkett and Hart-Landsberg 112). With an increased rate of entry of cheap products in the US market, the American light-manufacturing industry faced a major threat.
In fact, most American light manufacturing companies complained about the presence of excessive products from Japan, which was actually cheaper than those made in the US. In response, the American government pressurized Japan to limit its light-manufacturing industry, especially in textile products. Secondly, the US and some European nations started pressuring the Japanese government to liberalize the country’s industry and trade (Burkett and Hart-Landsberg 113). Thus, Japan responded by removing export subsidies as well as foreign exchange rationing, which decreased the number of light products going to the European and American markets. As a result, the light-manufacturing sector was scrapped.
Some internal factors, rather than the external pressures, facilitated the scrapping of the labor-intensive consumer electronic industry from Japan. For instance, Japan was facing a rapid growth of employment and output, which generated higher wages for both male and female workers. The increase in the level of wages made it difficult for local light-manufacturing industries to meet the demands of the workers. Most of the industry’s income was going to labor, which made the industry less attractive. Thus, the companies involved realized that the best way to maintain their profitability was to move to the neighboring nations where labor was not only available but also cheap.
What industries replaced those that were scrapped?
As the light industries started moving out of the country, the government focused on encouraging heavy manufacturing and chemical industries. For instance, the government encouraged massive investments in iron, steel, chemicals, shipbuilding, and petroleum industries. On its part, the government engaged foreign nations to open up to the heavy products from the new industries in Japan (Burkett and Hart-Landsberg 111). Moreover, the industries were ready to meet the high wage demands in the country because the level of profitability was relatively high. As a result, Japan moved from a middle income to a developed nation within a period of three decades.
Koo argues that since the bursting of the bubble economy, Japan suffered a balance-sheet recession. Explain what this means.
The recession that affected the Japanese economy in the 1990s was unique and different from the great recession that affected the US in the 1920s. In particular, scholars note that Japan’s problem did not originate from the structural or banking issues or even monetary policies. Instead, Japan’s problem was a balance sheet recession. According to Koo (34), this rare financial phenomenon was only seen in Japan. In this case, Japanese companies stopped taking new loans but continued paying back their previous debts. When the interest rates came close to zero, the companies defied the common economic law by refusing to take new loans but continued to pay the previously acquired loans. In addition, the companies started reducing fund procurement after the 1990 bubble, when the country was still experiencing inflation. According to Koo (36), the phenomenon leads to a loss of demand in the national economy in two major ways. First, businesses fail to reinvent their cash flows. Thus, the economy experiences a major recession.
According to Koo (37), the balance sheet recession witnessed in Japan was caused by a plunge of the asset prices that triggered the balance sheet problems of the companies involved. According to this concept, the Japanese asset prices experienced a major plunge that destroyed millions in the balance sheets of most companies. Foreign investors buoyed the stock prices, causing a major fall of more than 50%, while other assets failed to attract foreign investments. The concept argues that foreign investors were responsible for more than half of the net purchase of the equities in the country for more than 15 years.
What has been the role of fiscal and monetary policy in addressing the long stagnation and deflation in the Japanese economy?
Both fiscal and monetary policies in japan, though initially blamed for the balance-sheet problem, have played a significant role in addressing the long deflation and stagnation in the country’s economy. In particular, the fiscal stimulus policy supported the economy. The government issued bonds and spent the money as a way of stepping into the economic woes. For instance, the government used this strategy to borrow and spend millions of Yens during the crisis, which eventually saved the housing sector from a looming financial crisis.
Similarly, the government involved a monetary policy by forcing the Bank of Japan to increase monetary policy several times. The government threatened the central bank if it failed to increase the money supply during the crisis.
Works Cited
Burkett, Paul and Martin Hart-Landsberg. Development, crisis and class struggle: Learning from Japan and East Asia. New York: Saint Martin’s Press, 2012. Print.
Koo, Richard. The holy grail of macroeconomics: Lessons from Japan’s great recession. New York: John Wiley & Sons, 2010. Print.
Otsubo, Shigeru. Post-war development of the Japanese economy. Nagoya, Japan: GSIF Nagoya University, 2007. Print.
Vestal, James. Planning for Change: Industrial Policy and Japanese Economic Development, 1945-1990. Oxford: Clarendon Press. 2003. Print