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I Japanese Economy after WWII: the model The Japanese economic Miracle

Japanese Economy and Model from glory to crisis. I Japanese Economy after WWII: the model The Japanese economic Miracle Possible explanations The Japanese model and the East Asian miracle II Japanese « Lost Decade » The bubble 1985-1990 The economic crisis

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I Japanese Economy after WWII: the model The Japanese economic Miracle

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  1. Japanese Economy and Modelfrom glory to crisis • I Japanese Economy after WWII: the model • The Japanese economic Miracle • Possible explanations • The Japanese model and the East Asian miracle • II Japanese « Lost Decade » • The bubble 1985-1990 • The economic crisis • Lack of reactivity from the authorities • III Japanese Economy today: “back on track”?

  2. Basic figures on the Japanese economic « miracle » • Origins of Japan’s miracle date back to the Meiji restoration (1868) and the understanding of the necessity for Japan to develop through foreign contacts • Sustained economic growth (compared to other countries in the world) GDP growth (Yen): • 1955-1975: 10% per annum • 1975-1990: 4.5% per annum • Profound transformation: agrarian traditional society  industrial society • Ikeda Income-Doubling Plan in the late 1950s, reached within 8 years only • 1964 Tokyo Olympics showed the world Japanese advance • Share of world exports: Japan up from 3% in 1960 to 9% in 1992… • … but relatively small share of foreign trade (20% GDP, Germany 70%) Real Growth rate in $: 1955-1975: 10% 1975-1990: 10% (due to Yen appreciation)

  3. A very rich countryGNP per capita (US$) … and a very egalitarian one tooGINI coefficient (1990’s)

  4. The iron triangle Zaibatsu: large industrial and banking holding dissolved after WWII (Mitsui, Mitsubishi, Sumitomo, Yasuda) Keiretsu: diverse set of companies with commercial bank, insurance company, sogo shosha, manufacturers, suppliers, distributors… Sogo shosha: large international trading (import-export) organizations No formal authority but strong informal ties Big Business Bureaucracy LDP • Always in power since 1955, • apart 9 months in 1993 • Powerful elites • Agricultural support (easing transition • from agrarian to industrial society) • Business (Keidanren) gyosei shido (administrative guidance) - MITI (industrial policy) government tells companies what to make, who makes it, subsidizes loans… controls foreign currency and technology approval - MOF (financial policy)

  5. Some explanations for the Japanese miracle (1)based on Yves Tiberghien’s work • Role of the government (Allinson p.88-95) • Continuity of Institutions (Bureaucratic System inherited from Meiji and from Tokugawa: Samurai turned into administrators; long history of Education system) • Government interventions (Labor markets, Capital markets and issue of directed credit, Industrial policy, FDI, Trade policy, Exchange rate policy) • Role of the MITI: Chalmers Johnson’s bureaucratic dominance (Allinson p.92-93) • “situational nationalism” in Japan • Developmental State targeting economic development with a strategic goal-oriented approach • Supported by an elite economic bureaucracy… • … and a pilot organization created to manage industrial policy, the MITI… gyosei shido • … with a twin industrial policy aiming at structural changes (increasing the share of heavy industry) and economic rationalization (efficiency, higher technology). • Bigger Political Argument (Allinson p.88-97) • National Stability • One-party dominated Diet: stability, consistency • Weak Legislature, Weak Opposition, Weak grassroots political organization • Stable labor relations

  6. Some explanations for the Japanese miracle (2)based on Yves Tiberghien’s work • Cultural explanation (Allinson p.83-86) • Confucian affection for harmony and consensus • Filial Piety  Loyalty + lifetime employment • Hard Work, Honesty, Achievement, Education, Propensity to save (25%), Obligation… • Geopolitical explanation • US-Japan Alliance (and Cold War)  capital and military protection, usually the highest expense of a government, in Japan less than 1% of GDP • US aid, technology transfers, market • Economic explanation (Allinson p.97-105) • Zaibatsu, Keiretsu • Sogo shosha • Financial practices: postal savings and commercial banks kept cost of capital low and enabled Japanese companies to pursue long-term development goals (investment 20% GDP) • International environment: low cost raw materials; currency exchange rate stability (IMF); open world markets (GATT); booming international demand for manufactured products

  7. The East-Asian Miracle Time to double per capita income at the beginning of industrial transformation • UK: 58 years 1780-1838 • US: 47 years 1839-1886 • Japan: 34 years 1885-1919 • South Korea: 11 years 1966-1977 • China: 8 years 1985-1993 Gerschenkron effect • The Flying Geese Pattern (Akamatsu 1962) • Japan • Dragons: Hong Kong, S Korea, Singapore, Taiwan • Baby Tigers: Indonesia, Thailand, Malaysia, Philippines • Geopolitical consequences: • Rise of Japan from 1960s to 1980s  late 1980s, seen as main rival or enemy for the US • Rise of Asia in global economy (1984) and global relations  shift in balance of power • Rise of China in 1990s  “panda huggers” or “dragon slayers” reactions Development Time

  8. The bubble 1985-1990 (X4) • Enormous bank lending  speculative rise of both stocks and real estate Caused by an interaction of 3 kinds of factors: • availability of cheap money (interest rates, endaka)- wrong monetary policy • financial deregulation • antequated government regulation of finance 1. US concerns with trade deficit and Endaka (rise of the Yen)  Plaza Accord of 1985 2. Louvres Accord of 1987: Japan as world economy’s growth  Lowering of Interest Rates from 5% to 2.5% 3. Exchange Rate Deregulation (1979) and Financial Deregulation (1984)  Bank innovation 4. Large corporations: reliance on direct financing instead of bank financing • Why didn’t Japan do anything to stop it? Some common explanations at that time • Japan’s domestic money fuels the rise (strongest economy in the world, huge savings, trade surplus) • Japan has no inflation (no need to raise interest rates) • Japan reached a more advanced economic stage, usual yardsticks aren’t adapted to describe it • Land prices are safe loan collaterals, they never fell in Japanese history.

  9. 1989: Japan’s stock market = 42% of the world’s stock capitalization • 1989: Japan’s total land value = 4 times the total US land value • Tokyo land value alone = total US property value • Imperial Palace alone = total value of Canada

  10. but then…. • Overzealous New Governor of Bank of Japan Yasushi Mieno wants to stop the bubble and abruptly raises interest rates from 2,25% to 6% • 1990 - 1992: financial crisis • The bubble exploded (Nikkei lost a 1/3 in 1990) • banking crisis • bad loans (up to 1/4 of GDP) • Collapse of Bank Lending • 1992 - 1998: crisis expands in real economy • 1998 - 2002: recession and deflation The length of the crisis brings about the question of the place and role of the State in Japanese society. Is it a crisis of the “state-control” (Alan Greenspan)?

  11. Why such a lack of reactivity from authorities? • Banking problem  when you have a whole you put money in banks… it took Japan 8 years, and only partial measures • Keynesian policies (public works, subventions…) public debt 160% GDP Dramatic economic handling of the crisis But social damages extraordinary limited: • Unemployment: 80’s 2%  2002 5.6%  2005: 4.2% • Poverty: OCDE 4% (USA 12%); 30,000 homeless people, 3 times more only in New York) And political damages too: LPD still leads Japan (only 9 months away in 1993) whereas it is responsible of the crisis and has always been criticized for its way of (badly) handling it Japan didn’t treat this crisis as an economic crisis but as a model crisis Japanese favored progressive social and political reforms, and always maintained political and social peace to allow reforms to progress

  12. Japanese Economy today • Restructuring of Japanese companies • Too many people  2 million industrial jobs lost • Too many firms  350,000 bankruptcies (Daiei) • Production costs too expensive  delocalization to China • Better banking situation (bad loans <4%) • More and more integration with China ($160 billion 2004)  2,6% growth in 2004 (best year since 1998) • but also more inequalities (4 million freeters…) • A more opened economy? • Carlos Ghosn revived Nissan in 1999 • Sir Stinger heads Sony • 1st Japanese hostile takeover ever in 2005 (Livedoor/Fuji TV) • Japanese legislation on M&A and poison pills • The privatization of Japan Post « The biggest reform since Meiji era » world biggest financial institution Yen 350 trillion, more than $3 trillion  public works, low rates

  13. どうも​有難う ​ございました

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