How Japan Realized Her "Impossible Dream": T.Murata

Fortunately, my home in Kochi on the island of Shikoku was intact, although the main part of the city had been seriously damaged by bombing on July 4, 1945. As a result, we had an unobstructed view of the whole city from our house. The reconstruc tion of Japan had to begin, so to speak, from "Ground Zero." Professor Murata has taught economics for many years at Yokohama Commercial College in Japan. He earned a master's degree at New York University, writing his dissertation under the late Ludwig von Mises. He has also translated sev eral of Dr. Mises' books into Japanese, includ ing, Human Action. Post-World War II Hardships and InBation (1945-1949) The soldiers and civilians who returned from the war aggravated the food and un employment situation. Production nation wide was in disarray. Of Japan's eighty millionor so people, close to 10 millionwere nonproducers, either in the military or on some other government payroll. Land re form, abolition of the peerage system, and the liquidation of big financialcombinations had overturned the entire prewar social structure. Bank deposits had been frozen; depositors could withdraw only a limited amount each month. The prewar privileged were hardpressed to survive, while some who had experienced hyperinflation and other calamities abroad had learned how to make a fast buck. There was a serious shortage of food. Farmers were more for tunate than most as they were able to trade their rice for jewels, furniture, kimonos, wedding costumes, or whatever, with those who were trying to supplement their insuf ficient rations.

In those postwar days, the Japanese could" escape" for a few hours by watching American movies. Beautiful American houses and appetizing food on the screen were the envy of the Japanese. "Catch up and pass America" became their goal. But at that time it seemed an "impossible dream." The government tried to cope with the shortages by printing money, Le., inflating. When prices rose because of the demands for commodities by the new money recipi ents, the government attempted to fix prices, at least of the major staples. The government's Price Control Board had to hire more clerks to keep pace with the increased applications from businessmen for price increases. But government con trols and government employment could not bring economic development to Japan. That would take the energy and genius of entre preneurs who were freed to compete on world markets. Eventually Japanese busi ness produced steel, refined oil, built ships, manufactured automobiles, and developed a 493 494 THE FREEMAN • SEPTEMBER 1994 wide range of consumer electronics goods.

Honda, Toyota, Nintendo, Sony, and Canon became household words throughout the world. Recovery Begins The Reconstruction Finance Bank (RFB), founded in January 1947, floated bonds, most of which were underwritten by the Bank of Japan, and loaned money to pro ducers of priority goods-food, coal, steel, ships, electricity, etc. The RFB's loans increased the production of coal, iron, steel, and rice, but at a high price: accelerated inflation. An American adviser, Dr. Joseph M. Dodge, visited Japan in February 1949; his aim was to stop the inflation. The "Dodge Line" he prescribed called for reducing subsidies, discontinuing the RFB bonds, and developing a government surplus. In flation subsided as a result and production began to revive. With the intent of encouraging economic development, the government restructured its Ministry of Commerce and Industry in May 1949, forming a new Ministry of Inter national Trade and Industry (MITI). MITI hoped to shape and direct Japanese produc tion by administrative regulations. It has had an impact on steel, oil, and trade.

However, its influence has not been com plete, and it has not always been beneficial. MITI's administrative regulations were not supposed to be binding but businesses gen erally felt compelled to go along "voluntar ily," or face possible "bureaucratic harass ment" later. Administrative guidelines could also be used as a barrier toderegula tion. Many production facilities had been re duced to ashes during the war. So new plants had to be constructed and the latest technology was imported. The new factories with low labor costs had a competitive edge over American plants; they were able to cut costs and increase productivity. Investment expanded and economic reconstruction ac celerated. However, the quality of Japanese products in those years was often inferior. People used to say that" After the war, only women and nylon stockings were stronger. " But changes were in the offing. Economic Development.

Takes Off After 1950 Transportation was difficultin those early years after the war. Many Japanese workers commuted long distances to their jobs by bicycle. Then in 1947, a company with only twelve employees devised a bicycle with a small motor, the Honda Kabu. This little motorcycle met a crying need. Thanks to the initiative and energy of the company's man agement, it expanded production in re sponse to consumer demand. It made not only motorcycles but also began producing automobiles. Its efforts paid off. It went on in time to become the present Honda Group, with thousands of employees, exporting so many cars to America and Europe as to cause international friction. The oil shock of 1973, when OPEC blocked the export of Middle East petroleum, was actually a wind fall for the small economical Honda with its high gas mileage. In 1980, the Japanese surpassed the Americans in car production for the first time. Soon Japanese car manu facturers were asked to restrict exports themselves. Later they developed close working relations with U.S. automobile manufacturers and began producing cars in the States.

Steel MITI sought to balance production, to avoid both surpluses and shortages. When in 1950 Kawasaki Steel's president, Yataro Nishiyama, announced plans for building a plant with two new blast furnaces, he en countered strong objections from MITI, the Bank of Japan, and the big-three steel mak ers. They feared an oversupply of steel and criticized his proposal as wasteful, unnec essary, and a duplication of investment. They pointed out that 19 of the then existing 37 blast furnaces were idle for lack of orders. 1 But Nishiyama was not discour aged; a third of the existing furnaces, he HOW JAPAN REALIZED HER "IMPOSSIBLE DREAM" 495 said, were over 30 years old; his modem blast furnaces would cut the cost of steel substantially. He went ahead. In February 1953, MITI finally approved the first phase of Kawasaki's project and the company was able to borrow from the Japan Development Bank and the Bank of Japan. In time Ka wasaki became one of the big six, diversi fying in 1991 into chemicals, and acquiring in June 1994 a Du Pont Chemical England plant making plastic compounds for use in auto parts. While government agencies like MITI look at what is, businessmen who risk their own funds do their best to anticipate what will be, what consumers will want in the future. In this case, Nishiyama was right; if he had acceded to MITI's adminis trative guidelines in 1951, his company's development and expansion would have been checked before it began.