The Japanese Experience of Economic Reforms

These 14 essays by 15 Japanese economists constitute a cooperative venture in counter-revisionism. ("Revisionism" in recent Japanese economic history means the ascription of Japan's economic miracle" to bureaucratic fine-tuning more than to market forces, plus the view that Japanese capitalism differs qualitatively from American and European variants.) The essays cover a wide variety of subjects and the entire period from 1945 to 1990, so that the "reforms" of the title include both Occupation regulations and post-Occupation deregulations (where they occurred). The tone is measured and moderate throughout, not to say academic, but the central thrust would be quite clear even without reference to Dr. Kosai's earlier textbook and monograph(1) which consciously treat Japan as a "normal" market economy. Incidentally, several of the present contributors point out that "revisionism" is a name more foreign than Japanese,(2) and also that few Japanese economists are revisionists in any sense.

After a summary introductory chapter by the editors, we have four overlapping chapters on the "stabilization policy", so-called, of the Occupation, and another four on a wide range of longer-term reforms (in agricultural and industrial relations) with extensions beyond the Occupation years. The final group of five chapters considers the role of government in the post-Occupation period proper, including both the period of high growth and the subsequent slowdown brought on by "Nixon" and "oil" shocks in the 1970s. The last two chapters of this group, on trade policy and agricultural protectionism, carry the story to 1990 but not to the subsequent "bubble-bursting". They are more critical of Japanese bureaucrats than are the authors of earlier chapters about the foreign occupiers of 1945-52.

Most of our authors are affiliated both with Tokyo-area universities (and/or with research sections of public agencies) and with the Japan Center for Economic Research (JCER), itself affiliated with Japan's most influential economic newspaper, Nippon Keizai Shimbun. The writers differ among themselves, more as to methodology than as to policy slant. Between them, the book provides the foreign reader with extraordinarily helpful condensations of both statistical data and legislative history. (For example, Mr. Komine's "planning" Chapter 12 digests in a comparative way no less than 11 planning efforts by the Economic Planning Agency (EPA) and its predecessor organizations, while Professors Teranishi and Yonezawa are most lavish with statistical data on finance and growth, respectively.)

Four theses on which most if not all of these writers agree are listed by Professor Yonezawa in her "National Independence and Rationalization" Chapter 10 at p. 291 f.

1. Occupation policy shifted sharply "from hostility to appeasement" under the influence of the Cold War; the shift was on balance favorable to economic recovery. (Other critics speak of a shift "from reform to recovery.")

2. In particular, the Korean War and the accompanying boom cushioned Japanese companies in the crucial initial stages of rationalization and growth.

3. Japan's initial and temporary insignificance and underdevelopment permitted mercantilistic policies which would not have been tolerated by the West a generation later.

4. Ideas of "market rationality" in economic behavior have survived both the war and the immediate-postwar control regime. (Of the four, this may be the most important).

Another general maxim I derive is that, while planning and direct controls may have been useful or even necessary in the early Occupation period (1945-47), this was seldom the case thereafter. Still another is that Occupation reforms either failed to survive the Occupation very long (anti-trust policy), would have been done by the Japanese themselves "in the natural course of things" (land reform), required past-occupation technological advances to make them workable (land reform, again), or were so abused by the Left that some compromise system had to be worked out by the Japanese (labor and industrial relations). This reviewer might go even further, and suggest that a "Zaibatsu-Minseito Japan"(3) would have done just as well as did SCAP, and with less inflation. Japanese policy after SCAP comes out badly too, except for deregulation measures especially in Chapters 13-14 on trade and agriculture, respectively.

Two interesting points struck me in connection with Professor Teranishi's discussion of Occupation monetary and financial policy in Chapter 3.

1. Japanese theories of inflation control, particularly Tanzan Ishibashi's "supply-side" approach. Centered on subsidies for key or basic industries, notably coal, iron, and steel. If these subsidies required increasing the money supply by |Alpha~ percent, but increased GDP by |Beta~ percent, the Fisher equation of exchange could be expanded:

(1 + |Alpha~)MV = p(1 + |Beta~)Y,

whence

p = (MV/Y)((1 + |Alpha~)/(1 + |Beta~)).

This is less than (MV/Y) if |Beta~ |is greater than~ |Alpha~, but so far as I can see, nobody has estimated the actual values of such coefficients.

2. The Dodge plan for Japanese disinflation should perhaps be looked upon as an exercise in incomes policy as well as in monetarism. By barring subsidies in aid of wage increases, Dodge was cutting such increases down, and thus turning the income distribution against (employed) labor.

This is, in conclusion, a serious collection of serious essays, whose perusal is especially recommended for revisionists and Japan-bashers.

1. The textbook referred to is Kosai and Yoshitaro Ogino, The Contemporary Japanese Economy (1984), and the monograph is Kosai, The Era of High-Speed Growth (1986).

2. Two influential revisionist works by non-Japanese are Chalmers Johnson, MITI and the Japanese Miracle (1982) and Karel van Wolferen, The Enigma of Japanese Power (1889). Perhaps more extreme, but written by a MITI bureaucrat for a Japanese audience, is Koji Matsumoto, The Rise of the Japanese Corporation (1991, Japanese original 1983).

3. The zaibatsu (financial oligarchy) dominated Japan's private economic sector during the interval between the two World Wars. The Minseito was the more nearly "orthodox" and "market-oriented" of the two major Japanese political parties of the same period.