japan's economic miracle -- 12/22/15

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Today's selection -- from Altered States: The United States and Japan since the Occupation by Michael Schaller. In 1950, the Japanese economy was still in shambles. Although under the guidance of a phalanx of U.S. policymakers, no strategy had worked to meaningfully revive Japan's economy. In June, Toyota, the vaunted automobile company, produced only 300 trucks. Then came the Korean War, and the Japanese economic miracle had begun:

"As of June 1950, despite two years of American assistance, Japanese industry lacked needed capital and export markets. The austerity program initiated by [U.S. economic advisor] Joseph Dodge during 1949 curbed inflation and halted deficit spending, yet it also triggered a severe recession. By June, unemployment reached 500,000 -- twice the level of the year before. Share prices fell sharply on Tokyo's stock exchange and small business failures increased dramatically. The index of industrial production had risen to over 80 per­cent of its prewar level, but a credit crunch limited investment in plants and equipment. More ominously, Japan exported less than half the amount of textiles and manufactured goods it had before the war.

"The Toyota Motor Sales Company typified heavy industry. The com­pany was squeezed between declining sales, unions resisting layoffs, and a credit crunch that prevented acquisition of badly needed technology. In June 1950, Toyota produced barely 300 trucks. President Kamiya Shotaro flew to the United States hoping to induce the Ford Motor Company to invest in Toyota. He arrived on June 24, just as the news broke of the Korean attack.

"At first, the fighting appeared to doom Toyota's prospects since the Defense Department discouraged Ford from diverting resources by send­ing a management team to Japan. Despondent, Kamiya left Detroit with a sense of failure. The next month, however, Toyota received a military order for 1,000 trucks. Within a year it had sold 5,000 vehicles to U.S. forces and boosted monthly production to over 2,000 units. Workers' annual wages doubled and the company paid its first dividend since 1945.

"Years later, Kamiya described these orders as 'Toyota's salvation.' The company used profits from military sales and technology transfers to mod­ernize its operations, reduce the power of organized labor, and begin pas­senger car production. Kamiya's happiness over Toyota's good fortune was tempered only slightly by a 'sense of guilt that I was rejoicing over another country's war.'

"Many companies had reason to celebrate. As Jeeps and other vehicles used in Korea needed repair, they were often brought to Higashi Nippon Heavy Industries (later part of Mitsubishi Heavy Industries) near Tokyo. More than a hundred U.S. military and civilian technicians, using the latest imported machinery, supervised the Japanese workforce. Miyahara Toshia, production manager and later a director of Mitsubishi Motors Corporation, recalled that 'everyone in the plant, from the foreman down, was given a chance to learn a mechanized, integrated process.'

A Japanese factory post WW II for special procurement by the UN forces in Korea

"Benefits from military procurement spread beyond heavy industry. Shortly after fighting began in Korea, the U.S. Army Procurement Officer in Yokohama called in officials of firms that made bags for holding rice. 'We need all the gunny sacks you have,' he told them, 'and we need them urgently for making combat sandbags. It doesn't even matter if they're used. Name your price and we'll pay for it.' These companies eventually sold 200 million sacks to the U.S. Army at twice the usual price. This enabled the Nippon Matai Company to expand its force of sewing machine operators from 30 to 150. By adding new equipment and diversifying pro­duction, it eventually employed over 1,000 people.

"War orders benefited the textile, construction, automotive, metal, communications, and chemical industries. At the peak of the Korean conflict, nearly 3,000 Japanese firms held war-related contracts while many others arranged with U.S. companies and the Defense Department to acquire new technology. During the first year of the Korean War, procurements totaled some $329 million, about 40 percent of the value of Japan's total exports in 1950. During 1952, procurement and other forms of military spending reached $800 million. The index of industrial production finally surpassed the pre-World War II level in October 1950, rose to 131 percent in May 1951, and kept climbing. By 1954, Japan earned over $3 billion in defense expen­ditures, initiating a two-decade period of 10 percent annual growth in the GNP.

"The outbreak of fighting in Korea breathed life into the dormant Japanese economy and stock market. Small wonder that when Prime Min­ister Yoshida learned of the North Korean attack he reportedly exclaimed, 'It's the Grace of Heaven,' or that Bank of Japan governor lchimada Naoto called the procurement orders 'divine aid.' Speaking in the Diet early in 1951, Yoshida asserted that the 'Korean War provided more stimulus for Japanese economic resurgence than did all the occupation efforts.' Ambas­sador Robert Murphy described the war as a 'godsend' that enabled Japan to rebuild at 'maximum speed.' The procurement boom, he remarked, 'transformed' Japan into 'one huge supply depot, without which the Korean War could not have been fought.' "