1. Japanese Politics week 5 Rapid Economic Growth

2. First watch Youtube video for Japan Rapid Economic Growth  http://www.youtube.com/watch?v=oOpQGuluv38 http://www.youtube.com/watch?v=oOpQGuluv38

3. Why we have to study rapid economic growth in Post-war Japan?  From 1954 to 1963 Japan’s real national product rose by more than 2.2 times (annual average growth rate 9.4%)- Same time US 2.8% UK 2.5%  Everybody regarded Japanese economic growth in the post- war period as ‘miraculous’ one. Japanese company grow much faster and bigger than 20’s US companies like Ford (the famous Ford system)  And Japanese companies achieved this with excessive competition, (ex 64 in New York, 38 in Hong Kong)  Pre-war Zaibatsu (Korean word : 재벌 ) turned into Keiretsu (Korean word: 계열 ) in English Groups.  Two thing high growth rate and excessive competition are link like two side of coin there are four secrets of rapid growth in Japan.

4. The Establishment of Indirect financing-1  First of four secrets the method of obtaining funds for an enterprise. Main three methods are  1. indirect financing see Table 1 on p332 After WW II Japan developed own methods to financing enterprises, currency changed to Brand new Yen from 1946 –It means clean the debt of Banks  2. Special losses on War-time subsidies all the debts went to shareholders not Bank  3.Zaibatsu had large assets, many employees, engaged in branches if activity unrelated to one another, exercised managerial control over enterprises, and supplied the greater part of important products.  4. Banks were consistently afforded preferential treatment due to the success of some measures and the failure of others =great factor in the development of the Japanese indirect financing method.  See Table 2 (p334) for further understanding on meaning of ‘indirect financing’  Government financial institutions importance declined greatly while private financial institutions especially city banks rose.

5. The Establishment of Indirect financing-2  See Table 3 and Table 4 (p335)  Fierce lending competition among the city banks are modern trend however still over 2/3 of the amount on loan from city banks lent to large enterprises.  Add that to long-term credit bank, the trust banks, and the development banks =immense sum in capital funds supplied entirely for the purpose of financing large enterprises  See Table 5 (p336)  This table shows that the lending power of the city banks is the greater, and that they easily have more than enough funds with which to meet the requirements of the Keiretsu enterprises  1. after 1956, importance of government financial institutions declined and the indirect financing centred  2. fierce competition in loans occurred among the city banks  3. greater part of the loans went to finance large enterprises  4. Keiretsu financing was particularly conspicuous.

6. The Principle of ‘Set Control’ of the New Enterprises  Company backed by powerful banks, those formerly affiliated to the Zaibatsu and in possession of advantageous positions for obtaining funds took steps to rebuild and expand themselves  All the Keiretsu backed by banks eagerly entered new fields, including which they had no connection before the war. (ex: Steel, Automobile, Paper industry)  See Table 6 (p339) to understand this trend  All new enterprises get into new fields had the backing of such powerful banks  See P338’s seven pairings  Zaibatsu=Companies, Keiretsu=Bank at Centre

7. The Economic policies and Economic Institutions which sustained The Rapid Growth  1. Over-loans Dependent on the Bank of Japan  See Table 8 (p345) because of over-loans City bank’s dependence degree to Bank of Japan were very high (City Banks cannot make profit on loan)  See Table 10 (p347) borrowings from the Bank of Japan by principal city banks  2. The Formula for Foreign Exchange Control  At that time $1=360Yen on single rate Japanese government control the exchange and it was huge advantage to Japanese exports in 1950s-60s  Bank of Japan, Ministry of International Trade are formula to Japanese Keiretsu can success in the international market.

8. The Key to the Secret of the Rapid Economic Growth  Particularly from 1955 to 1960  1. The establishment of special indirect financing possessing the attributes of ‘Keiretsu Financing’ to a high degree  2. The investment behaviour by which each Keiretsu sought to gain control of a complete set of new industries  3. The Bank of Japan’s formula for the supply the fund and the give profitable investment opportunities to all the Keiretsu indiscriminately  Rapid Growth is well-organized Keiretsu done huge part, important characteristics of the Post-war Japanese economy.

9. The Origins of Japanese Industrial Power

10. The Origins of Japanese Industrial Power-2

11. Conclusion-How can this Rapid Growth Possible?  1. Timing : 1950 Korean war helped Japanese economy a lot and Korea became guard to Communism invasion  2. Culture : Unique Japanese culture helped work as a group, follow the order, dislike individualism etc  3.Organizational Capability : as we seen above there were help from institutions, Bank of Japan, Government etc.  These three factors combine well and made ‘miraculous rose’ from the ash of WW II.

12. Next Week’s Reading  Japan's Financial Crisis and Economic Stagnation  http://www.jstor.org/stable/3216873 http://www.jstor.org/stable/3216873  First-Mover Disadvantage: The Politics of Financial Crisis Response in Japan and the United States  http://unpan1.un.org/intradoc/groups/public/documents /apcity/unpan050392.pdf http://unpan1.un.org/intradoc/groups/public/documents /apcity/unpan050392.pdf