The Economic Development of Japan

Haruo Endo

Thank you for your kind introduction.

Your Excellencies, dignities and ladies and gentlemen,

First of all, I would like to extend my gratitude to the Muscat Municipality for giving me the opportunity to deliver my lecture today and I sincerely thank you all for your attendance.

When I was asked to deliver my lecture under the theme of “How to build Arab Development”, I considered what to talk about in order to make my lecture useful to you. One idea was to discuss the Arab Development in a forward-looking manner.

However, what I have decided is to talk about Japan’s experiences in the economic development for your information referring to its nation building and modernization.

So, the title of my lecture today is “The Economic Development of Japan”, which consists of three parts,

Firstly, “The Economic Development of Japan”..

Secondly, “Reasons for the Success of the Japanese Economy”

Thirdly, “My Views on the Economic Development of Oman”

Now, let me start with the first part, “The Economic Development of Japan”.

1. Economic Development of Japan since the Meiji era

(1) Meiji (tanwir) Restoration

Japan became the No.2 world economic power in a very short time after the Second World War rising from devastated ruins. So, most people have shown keen interest in the reasons for its success.

However, Japan’s nation building and modernization began with the Meiji Restoration, not after the Second World War.

So, my lecture will cover the economic development of Japan since the Meiji Restoration.

By the way, “Meiji” is the name of the Emperor who reigned Japan from late 19^th century to early 20^th century and literally means “Enlightenment” in English or “Tanwir” fi Arabi.

Officially, we, Japanese, use a word “era” to date a year. An ”era” means the years reigned by an emperor. That is to say, an “era” starts with the ascension of an emperor and ends with his death. So, “Meiji era” means the years under the Emperor Meiji. We use the year of the western calendar as well.

Therefore, for example, this year is officially 17^th year of “Heisei” and 2005 of the western calendar in Japan. You also have two ways of dating a year. You are dating this year officially 1426AH and 2005 of the western calendar.

Japan shifted its policy from isolation towards opening the country in 1854, one hundred and fifty years ago. This was forced by the arrival of Commodore Perry from the United States.

Until then, Japan had isolated itself for more than 200 years (1639-1854) from the fear of the spreading of Christianity.

A new government was formed in 1868, one hundred and forty years ago, with the Emperor Meiji as the head of state, following the turnover of political power in 1867 to the Emperor from the Shogun, the head of the Samurai class.

The Tokugawa Shoguns had governed Japan for 260 years (1689-1867) until then.

At that time, Japan was remote and isolated from the center of civilization and a feudal country which had been governed by the Samurais. As for Samurais, I think you have seen them on TV or cinema. The latest one was the Hollywood cinema, “Last Samurai”. They are characterized by their curious and unique hairstyles and clothes and by belting swords on, as you do khanjar today.

The Meiji government embarked on a program of nation building and modernization of the country to cope with the threat of colonization by the then dominant western powers, namely UK, Russia, Germany, France and USA.

The national policy of Japan was very clear from the start, which was to increase national wealth and military power and to encourage new industries.

Many Japanese were dispatched to European countries to obtain the necessary knowledge and many foreigners were invited to Japan as advisors.

As a result, a variety of reforms were implemented based on European examples,

Politically, the cabinet system was introduced and the constitution was promulgated.

Militarily, the modern army and the navy were created following the example of Germany and UK respectively.

Socially, a modern school system was set up and the social and economic privileges of the Samurai were abolished.

Moreover, Japanese changed their lifestyles a lot then. Belting on swords and old hairstyles were prohibited by law. Clothes were westernized and some of western foods were introduced to Japan.

Economically, the system of land ownership was revised and modern industries were developed.

As for the development of industries, there was no modern industrial base. So, in the beginning, the Government took the lead to meet the urgent need. Together with the development of infrastructure such as railway and communications etc., the Government firstly developed light industries such as silk and spinning industries and coal mining as well, and the weapons and shipbuilding industries later.

In nearly twenty years after the Meiji Restoration, the government sold off all the government owned factories to the private sector except weapon making ones and encouraged the establishment of private enterprises under a privatization policy.

As a result, many private companies, especially spinning and railway companies were established and, thereby, in twenty years after the Meiji Restoration, the base of modern industries was built.

A war with the Imperial China broke out in 1894, vying for the control of the Korean Peninsula and ended with Japan's victory. A war with Russia, one of the biggest world powers then, broke out in 1904 vying for the control of Manchuria (presently, part of China) and ended also with Japan's victory.

The victory was a big surprise to the world because no one had imagined a country of a colored and non-Christian nation could defeat a Western Power. It encouraged awareness of independence among the developing countries in Asia, the Middle East and even in Europe, as you know.

After the wars, Japan put the Korean Peninsula and Manchuria (presently, part of China) under its control and acquired Taiwan, half of Sakhalin and the Ryukyu islands and also obtained indemnity from China.

Due to the expansion of its territory, the Japanese economy expanded remarkably.

In addition to the light industry, heavy industries such as steel, shipbuilding, machinery industries, power generation, gas and water supply industries) also expanded, together with weapons industries. The base of Japanese heavy industries was consolidated during this stage of the industrial revolution.

It was forty years after the Meiji Restoration.

Thereafter, Japan underwent recession and an interim economic boom, and recession again.

(2) During and After the First World War

The First World War broke out in 1914, when Japan was suffering severely from continued economic recession and huge financial deficits. During the War (1914-18), however, Japan enjoyed unprecedented economic prosperity by increasing its export to the USA, thanks to the economic boom there, and also to Africa, Asia, Australia, etc., to replace lost exports from warring European countries.

All industries, including steel, shipbuilding, machinery, spinning and energy, developed rapidly. Among others, shipping industries made a remarkable expansion.(and chemical industries, such as fertilizer and synthetic dyeing, also started to develop during this period.)

After the War, Japan was considered one of the great powers at that time, together with USA, UK, France and Italy and Japan became a permanent member of the League of Nations.

In the fifty years since the Meiji Restoration, Japan had transformed itself into an industrialized country from an agricultural one and had become one of the world biggest powers.

(3) Recovery and Rapid Economic Growth of Japanese Economy after the Second World

War

Thereafter, Japan unfortunately took a course towards militarism and entered into war with China in 1937 and the Second World War in 1941. Japan was defeated in the War in 1945 and lost its land and assets badly.

During the war, as you well know, Japan experienced atomic bomb attacks at Hiroshima and Nagasaki for the first time in human history.

(a) Collapse of Japanese Economy

When Japan lost the War, mining and manufacturing production capacity dropped to half (53%) of the highest pre-war (1938) level and agricultural production dropped to 60% thereof. One fourth of the buildings and houses were destroyed in the War. The territory of Japan dwindled to less than 60% (56%) of the pre-war time because of loss of the Korean Peninsula, Taiwan, Sakhalin and the Ryukyu islands etc.

Japan, moreover, had to accommodate six million repatriates from overseas.

At that time, I was twelve years old. Based on my own experiences, I am explaining the situation that the Japanese were more than poor, they were all beggars then. We did not have enough clothes to put on, enough food to eat and enough houses to live in. We ate anything eatable, e.g. insects, stems of plants, etc. I remember I used to eat porridge because we did not have enough rice to eat. Many Japanese actually died of hunger and malnutrition. GDP per capita was supposed to be less than US$200 then, nearly the same level as that of Bangladesh today.

In order to achieve its current economic prosperity after the end of the Second World War, Japan experienced a number of stages of economic growth.

Firstly, Recovery period.

Secondly, Rapid growth Period.

Thirdly, Period of transition to an economy of stable growth rate (early 70’s – mid 80’s)

Fourthly, Period of expansion and contraction of Bubble economy (mid 80’s – early 90’s)

Fifthly, “Lost decade” -

My lecture today, however, will highlight economic growth only in the recovery period and the rapid growth period.

Firstly, about (b) Recovery Period from the end of the war to the mid fifties.

Immediately after the War, the US Government had intended to return Japan to being a poor agricultural country by removing all industrial facilities and shutting out Japan completely from foreign trade. Moreover, it intended to impose on Japan a heavy burden of indemnity to Asian countries.

Later, the USA changed its policy to cope with a change of the international situation, the so called "Cold War", confrontation between the USA and the Soviet Union, and prospective military victory of communists in China, and decided to make Japan a bulwark against communism by encouraging its industrialization. The indemnity was reduced a lot initially and abandoned finally (1949).

As commodities and foods were in extreme shortage after the War, the Japanese economy firstly suffered from rampant inflation. A rigorous retrenchment program was implemented thereafter for containing inflation and it plunged the Japanese economy into a severe depression.

The opportunity for recovery came with the outbreak of the Korean War in 1950. Then, North Korea invaded South Korea. US forces stationed in Japan began to make special procurement of supplies and services from Japan, and, accordingly, Japan overcame the depression and achieved a basic rehabilitation of all industries.

In 1955, GNP per capita finally exceeded the pre-war level (1934-1936).

It was ten years after the end of the war.

The Japanese Government announced in 1956 that the economy of Japan could no longer be termed “Post-War”.

Now, about (c) Rapid growth period

From the late fifties until the early seventies, Japan achieved an extraordinary economic growth rate, unprecedented in human history, based on the heavy chemical industries (consisting of steel, shipbuilding, refining, oil refining and petrochemicals, etc.).

Then, Japan wisely took advantage of the energy revolution "from coal to oil" based on the development of the oil resources in the Middle East..

Large-scaled refineries and petrochemical complexes were built then all over Japan. Textiles firms developed man-made fiber businesses based on oil.

As for heavy industries, the steel industry made a huge investment in constructing large-scaled mills with the latest equipment. Shipbuilding and shipping industries were encouraged to build enough tonnage of tankers to meet Japan's needs as well as to earn foreign exchange. They also achieved a technological innovation in building VLCC (very large crude carrier) and ULCC.

In addition, the machinery industry developed new major branches for the manufacture of transport machinery (vehicles), electrical machinery (household electric goods), etc. heavy machinery and precision machinery.

"The Income doubling program" was announced by the Cabinet led by Mr. Ikeda, the then Prime Minister, in December 1960.

It was a plan to double individual income in ten years.

Japan's GNP actually expanded at a high average rate of 10% from the late fifties (1956) through the 1960s. GNP doubled in seven years from 1961 to 1967. In 1968, Japanese GNP ranked the second in the world, next to the USA, by surpassing West Germany. It was just 100 years after the Meiji Restoration.

Development during the 1960’s was called "the Japanese Miracle" and Japan was dubbed "Japan as Number One" in 1979（Professor Ezra F. Vogel）

2. Reasons for the Success of Japanese Economy

Now, what were the reasons for such successes in the Japanese economy?

Japan is a small country. The land area of Japan is one twenty-fifth of USA and Japan does not have any remarkable natural resources. Why could Japan become NO.2 economic world power?

Moreover, Japan ‘s land area id 1.2d times that of Oman. Roughly, it is nearly the same as that of Oman. How could Japan afford to accommodate this large population, while maintaining one of the highest level of GDP per capita in the world?　

There are various opinions among Japanese and foreign researchers. There is no consensus on which factors were the important ones.

My views are as follows:

(1) National Cohesion under the clear national policies and wise leadership

Firstly, there was a strong national cohesion under clear national policies and wise leadership.

About,

a) Clear National Policies

・There was a clear policy of ”Increasing national wealth and military power and encouragement of new industries” during the Meiji era.

　・There was a clear policy of " Income doubling program" after the Second World War.

・”Working assiduously to catch up with and overtake western countries” had been a continuous national policy of Japan since the Meiji Restoration.

b) Wise leadership

・The Japanese have been unified under the Emperor, especially the Emperor Meiji and the Emperor Showa when Japan was facing serious difficulties.

・We had politicians during the Meiji era.

・We had Prominent politicians, bureaucrats and the business leaders after the Second World War and close cooperation among them (Iron triangle, in another word ).

(2)Luckiness

Secondly, I think Japan was lucky.

In the first place,

a) During the Meiji era, Japan could escape from foreign interference because of its location, far from the world powers, and international situation then. For example, UK was busy with wars in China, mutiny of Sepoy in India and Boer war in Africa. USA was involved in the Civil war and Russia was busy with Crimea war.

(The first Opium War, 1841 and the Second Opium war, 1856. Mutiny of Taiheitenngoku, 1851-64. Mutiny of Sepoy, 1857-1859. Crimea War, 1853-1856,

American Civil war, 1861-65. Boer war, 1899-1902, The Philippine’s national movement)

In the second place,

b) Japan could win the war with Russia, one of the biggest world powers then.

c) Thereafter, Japan luckily attained unprecedented prosperity during the First World War by increasing its export to the USA, thanks to the economic boom there, and also to Africa, Asia, Australia, etc., to replace the lost supply from warring European countries.

Japanese textiles penetrated into the Gulf markets during this period.

d) After the Second World War,

There was a

・Change of USA policy towards the industrialization of Japan because of the so-called ”Cold war”. Otherwise, Japan was destined to return to a poor agricultural country.

・Japan could come out of the severe depression, thanks to the special procurement demand from the US forces during the Korean War, which broke out in 1950.

・A free trade system was available then, which enabled Japan to import necessary resources such as oil, iron ore, coal etc., and export its industrial products freely.

･ Japan could concentrate both of capital and human resources on the economic development due to the national commitment to peace.

As you know, the present Japanese Constitution promulgated in 1947 renounces

the sovereign right of the State to use war as a means of settling international

disputes. Therefore, military expenditure of Japan has been comparatively low and Japan could utilize both of capital and human resources then for development of economy.

・Japan could take advantage of the then latest equipment and technologies

because of the complete destruction of the old production facilities during the Second World War.

・It was not only the production facilities that was destroyed. Political, social and

economic system also broke down.

Socially, nobility system was abolished and Japanese people became equal in

terms of social class and equality of both sexes was established.

Economically, zaibatsu, Japanese big business groups, were dissolved. Thereof, Japanese were entitled to equal opportunity and they were exposed to keen competition among individuals and companies.

This equality of opportunity and keen competition was one of the main reason for the economic development of Japan.

western (3) Cultural Traditions and Human Resources

Thirdly, as the most important reason for the success in the development of Japanese economy, I would like to highlight the cultural traditions and human resources as follows:

a) Japan had a well-educated and diligent workforce.

b) Those well-educated Japanese had a great sense of curiosity towards knowledge and technology.

c) Moreover, they were sincere and diligent in learning.

Thereby,

・They absorbed the necessary knowledge and technology mainly from Europe during the Meiji era.

・the necessary knowledge and technology mainly from USA after the Second World War.

And, moreover,

d) They abounded in ingenuity (they achieved technological innovation by themselves (VLCC and ULCC) and modified these advanced western knowledge and technology into the Japanese way, e.g. from SQC to TQC, Kaizen, JIT, Kanban)

e) They were really diligent and, in addition, disciplined, dedicated, determined and group-conscious and well-organized as well.

As you know,

Japanese work very hard.

Japanese are disciplined. They keep time and promises.

Japanese are loyal to the organization.

Japanese are determined people.

Japanese are group-conscious and well-organized.

Those Japanese traits are inherited ones and can be said to be traditional.

I explained that Japan was lucky. However, I would like to stress that Japan could take advantage of and utilize the lucky conditions for its economic development due to the people’s continued efforts based on those national traits.

Moreover, the traditional Japanese management system, such as

・Lifetime employment

　　・Seniority system

・In –company labor union

contributed also to the successful economic development of Japan.

I will explain in brief how the traditional Japanese management system worked during

the rapid growth period.

I graduated from a university and joined a Japanese oil company in 1957, when the

rapid growth period just started. My colleagues, all university graduates, who joined

the company in the same year, were 160 in total. All were loyal to the company because

lifetime employment and raise of salary by seniority were guaranteed under the

management system. As everyone had the chance to become the president of the

company, we were forced to compete each other and worked very hard. After more than

thirty years since we had joined the company fresh

from universities, most of my colleagues retired at the age of 60 in the early 1990’s,

except five persons who could reach the rank of the director, surviving keen

competition with the colleagues. This equality of opportunity and keen competition

were driving forces towards growth of a company and also the economic development of

Japan.

As for cultural tradition, I would like to add one more thing. In the economic

development of Japan in the Meiji era, business was developed with the slogan of

“Wakonyosai” in Japanese.

“Wakon” means “Japanese spirits” and “Yosai” means “Western knowledge”

So, “Wakonyosai” literally means to develop business with Japanese spirits, utilizing

western knowledge.

Japanese spirits means Bushido (= code of the samurai class) which was inherited from

the Edo era (1603-1867) before the Meiji era. Thus, the economic development was

pursued with the inherited Japanese spirits.

Again, I would like to emphasize that cultural traditions and human resources were the keys to the success of the Japanese economy.

3. My Views on the Economic Development of Oman

Now, I would like to review the development of economy of Oman, keeping the reasons for the success of the Japanese economy in mind, as follows:

First of all, national cohesion under clear national policies and wise leadership is undoubtedly firm in Oman.

You have clear national policies.

As for economic development, Oman has established its future vision, “Oman 2020”, during the Vision Conference held in mid 1995 with the following major policies:

1) Creation of a stable macro economic framework

2) Development of the private sector

3) Human Resources Development

4) Economic Diversification

Under the wise leadership of His Majesty which is world famous, Vision 2020 has been actually converted into tangible forms in the 5th and 6th five-year plans and steadily implemented.

Privatization has been advanced.

The diversification of the economy has been materialized.

As for luckiness, I assume,

Firstly, Oman is luckily endowed with a strategic location and its beautiful landscape.

Secondly, Oman has been blessed with enough revenue to implement the policies, thanks to the oil and gas reserves.

I have explained to you that cultural traditions and human resources had been critical to the success of the Japanese economy since the Meiji era.

The issue will be also critical to the progress of Omani economy, I am sure.

His Majesty addressed to the Council of Oman in 2001,

"Dear citizens, nations are built by the hands of the citizens; Progress and prosperity can be achieved through learning, experience, training and qualifications. No doubt, the real wealth of any nation is made up of its human resources. They are the power that achieves development in all walks of life. They are indeed the power behind ever-changing ambitions. This is indeed the way towards glory, dignity and success."

Moreover, His Majesty stated in his address to the annual meeting of the Majlis Oman in November 2002 as follows:

"We always call for the development of human resources, their scientific capabilities, technical skills and technological expertise in order to meet society's urgent requirement and needs, and to provide opportunities for those resources to fully contribute to the blessed Renaissance witnessed by Oman in all walks of life."

Thereafter, His Majesty has repeatedly stressed the importance of human resources development.

As for my personal relationship with Oman and its people, my first visit to Oman was in April 1974. It was shortly after the start of the blessed Renaissance. I remember I stayed at the old one-storied Al Falaj Hotel then.

My second visit was in 1985 when Al Bustan Palace Hotel was under construction and, thereafter in the 1990's, I have lived twice in Muscat for four years as a JICA expert with the Ministry of Commerce and Industry.

Through my experiences hitherto with Oman, I have been much impressed by the glorious progress and prosperity of your country.

This was achieved because of your entrepreneurship and your efforts, based on your long and glorious cultural traditions and you have had an inspiring example before you, HM.

I sincerely hope that you will achieve the goal of the Renaissance, keeping in your mind that your success depends solely on your efforts.

Lastly, I would like to say a few words on Omanization.

Your government is expanding the employment opportunities for Omanis by setting

the Omanization target by sectors, advancing Sanad Fund Program, identifying job sectors to be held exclusively by Omanis.

While Omanization has been achieved in public sector to a great extent in Oman, the private sector is expected to help provide more employment opportunities for Omanis from now on.

In connection with this, I would like to introduce our experiences.

In Japan, until around the 23^rd year of Meiji (1890) almost all university graduates joined the ministries and other public sector jobs. Thereafter, they started to flow into private sectors and became businessmen.

It is over 30 years since Oman embarked on the blessed “Renaissance” and I think that now is the time for the Omani university graduates to shift more to the private sector to do business.

Secondly, I wish to tell you that all kinds of jobs are carried out by Japanese in Japan.

Taxi and truck drivers, sweepers and laundry, barbers, shop and restaurant attendants, hotel clerks, carpenters, farmers and fishermen, company clerks, mechanics, engineers and management, teachers, medical doctors, lawyers, government officials and so on.

Finally, I would like to add that Japan has also recognized the need to develop entrepreneurs and has allocated money to be available to promising ventures. Self employment through entrepreneurship is growing into a third valuable option in Japan, added to public or private sector employment.

His Majesty said the same thing at the Royal Camp at Seeh al Masarat near Ibri in 2001 as follows;

“Self-employment is the best choice for those who look for work”. HM added further that some of the important recommendations were that individuals could use the facilities which would be provided to set up their own businesses. HM noted that self-employment is another option added to working in the public and private sectors.

Thank you for your attention and good luck.