Has the sun set on Japanese-style development?

Source: Wikimedia CommonsSource: Wikimedia Commons

In 1960, a mere 15 years since Emperor Hirohito announced the surrender of a war-torn Japan, newly inaugurated Prime Minister Hayato Ikeda announced a bold initiative to spur on further development in the Japanese economy, that despite post-war reforms and improvements, still lagged behind leading Western economies. This initiative was the Income Doubling Plan, and promised precisely that; not only would GNP double over the next decade, so too would personal incomes. Like most economic plans, this was met with scepticism, and internationally Japan was still very much on the fringes. Charles De Gaulle even referred to Ikeda as ‘that transistor salesman’, a succinct summary of derisory Western attitudes to Japan and its economy throughout this period.

While Ikeda was forced by illness to resign in 1964, and died a year later, his plan proved an immense success, doubling incomes not in the forecasted decade, but within 7 years. Average growth for this period outstripped countries on both sides of the Cold War. This stellar economic growth continued well beyond 1970, and rather than ignoring the Japanese economy, in the West, politicians and academics alike came to question whether Japan would eventually become the dominant force in the global economy, and what could be learnt from Japan.

Of course, this growth would come to a sobering halt in the 1990s, and remains a shadow of the world-conquering force that it once appeared, despite remaining the third largest economy in the world. But could Japan provide developing countries with a blueprint for a successful transition to a modern, advanced economy?

Before this question can be tackled, it should be established what exactly constitutes a Japanese model of development. While it is not possible to distil a complex economic phenomenon into a neat, comprehensive package, there are certainly some aspects that came to define the period of growth.

Firstly, the close links between government bureaucracy, politicians and business facilitate economic development. The ‘Iron Triangle’ of the Japanese economy, these three institutions maintained a far closer relationship than their counterparts in the West. Elected politicians were frequently former bureaucrats, and similarly the policy of ‘amakudari’ or ‘descent from heaven’ meant that top positions in companies were filled by retired bureaucrats. That the bureaucracy should be ‘heaven’ demonstrates the importance of the bureaucracy in Japanese government. Chalmers Johnson, renowned commentator on the development of the Japanese economy, remarked that ‘politicians reign and bureaucrats rule’, suggesting that powerful ministries such as the Ministry of Finance (MoF) and the Ministry of International Trade and Industry (MITI) were where the true governmental power lay, rather than in the hands of elected officials. While arguably corrupt, and by-passing the democracy of the political system, maintaining a consistent core of people and policies driving the economic system allowed Japan to plan development not only for the short terms of government, but over a longer period. Long term initiatives such as Ikeda’s Income Doubling Plan could safely be implemented, knowing that the Iron Triangle of the economy driving it would remain stable and supportive. Furthermore, in comparison to other countries that also tried to implement long-term economic plans to little effect, Japan had a developmental history of successful close relationships in the economy on which to build. Since the beginning of Japanese modernisation following the Meiji Restoration in 1868, the government initiated state-led enterprises, as well as supporting the monopolistic zaibatsu corporations that emerged, many of which, such as Mitsubishi remain global companies and household names to this day.  When considering a ‘Japanese model’, close cooperation between bureaucrats, elected officials and business is an indispensable feature.

The other feature integral to post-war Japanese development was long-term planning, supported by government-provided protection. In contrast to the focus on immediate, year on year returns that modern international companies frequently pursue to placate shareholders, Japanese companies in the post-war period favoured long-term development, even at the cost of immediate prosperity. As developmental economist Ha-Joon Chang points out in his book Bad Samaritans, Japan’s largest company by revenue, Toyota, provides an excellent example of this point. Now synonymous with the global export of cars, Toyota began life as a manufacturer of automatic looms, and only later branched out into automobiles. For decades after it began its foray into this industry, Toyota could not make cars that compared with those of its rival companies around the world, and in 1949, Toyota had to be bailed out by the government. Furthermore, the government restricted the importation of foreign cars as a further form of industrial protection. That Toyota is now the fifth largest company in the world by revenue, is testament to the success which private enterprises found by branching out into more complex, greater value-added industries, where this was coupled with prolonged governmental support.  It was precisely this phenomenon which played such an important role in sustaining Japanese economic growth.

The question that naturally follows when considering such astronomic growth is of course, whether it can be emulated, which has remained a debate for decades. Two distinct opinions have emerged from the scholarship: that Japan is a unique country with distinctive features that make it impossible to imitate, or rather that the Japanese model can be and indeed has already been adopted. A plethora of essays, known as ‘nihonjinron’, or ‘discussions on the Japanese people’, advocate the individuality of Japan, and throughout the period of post-war development put forward theories  to explain Japan’s success. These ranged from the uniqueness of Japanese as a language or the Japanese culture of hierarchy to the more esoteric theories, such as how unique Japanese snow is, and consequently how imported skis are inferior to domestically produced ones. This theory conforms with a consistent perspective,  of Japan as unique and distinct, alien not only to the West but also other neighbouring countries. While perhaps we may take lessons from Japan, incurable cultural differences prohibit emulation.

More convincingly however, the development of the tiger economies in the latter half of the twentieth century suggests the success of transplanting Japanese-style policies in other economies. Park Chung-hee, while disastrous for South Korean democracy, presided over rapid economic development comparable to Japan’s, which was similarly led by economic policy closely monitored by the state. Indeed, much like how Toyota was supported through decades of losses developing cars, Park Chung-hee defied the advice of American advisors, and through state-led initiatives, developed more profitable industries such as the electronics industry South Korea is famous for nowadays. Similarly, another tiger economy, Singapore continues to have a significant government presence in the economy, with companies such as Singapore Airlines still part owned by the government. By emulating Japan and backing industries that provide long term success despite initial losses, these countries have successfully transitioned into developed economies.

If we therefore accept, based on these cases, that the model developed by Japan in its economic heyday is transferable, why do we not see it being employed by developing nations today? The primary reason is that global economic conditions nowadays prohibit pursuing the same policies that worked so well in the past. Supranational organisations such as the IMF and the World Bank, supposed to provide assistance to developing nations frequently prove the fundamental block, by forcing countries, through conditionality attached to aid packages, to adopt policies more in line with the open, free market capitalism of the developed world. These conditions include privatisation of state enterprises, liberalisation of trade and focusing output on basic industries such as extraction and exportation of raw materials. Had the now prosperous Asian economies been forced to adopt these policies, there would have been no chance of survival, let alone development, of key industries such as electronics and automobile production, which would have been matched up from infancy with counterparts from more developed, technologically competent nations. Countries that understandably accept aid from such organisations are forced to play their part in a global free market system- the part of the unlucky loser who is unlikely to develop to any meaningful extent while compelled to compete with countries that are far more prosperous and advanced than they are.

While the Japanese model of state-driven development has often been accompanied by a lack of civil liberties and democratic transparency, be it the Singapore of Lee Kuan Yew, the military dictatorship of Park Chung-hee in South Korea or the dominance of Japan by the Liberal Democrat Party, developing nations are equally having their democratic autonomy impaired by these supposedly good natured supranational economic organisations (and consequently, the free-market capitalist nations that support them) who force them to adopt economic policies that they judge, with their amassed economic wisdom, to be most appropriate. The lessons that Japan and the tiger economies give us are ignored and swept aside, in favour of the prevailing popularity of greater participation in a globalised, one size fits all, free market system.