How did Japan rebuild itself?

How did Japan rebuild itself and become an advanced nation and a major economic power in
the aftermath of the World War II?

"There are four kinds of countries in the world: developed countries, undeveloped countries,
Japan and Argentina" - Simon Kuznets.

Even though both Japan and Argentina have fallen out of favor with this quote but it is still one
of the best descriptors of the near vertical growth of Japan from 1950 to the late 1970's. The
prelude to economic growth in Japan began with land reforms initiated by Wolf Ladejinsky and
Hiro Wada under which almost 40 percent of the land in Japan was redistributed and
abolishment of Zaibatsu's. Though it was later reversed after the occupation, it helped liberalize
the Japanese economy [1]

The next big stimulus came in the form of the Korean War where Japan Japanese industry was
developed for providing war supplies to the United Nations forces.
A Japanese factory post WW II for 'special procurement' by the UN forces in Korea

Japan capitalized on that reconstruction efforts by exploiting 'two key opportunities of

backwardness' as Angus Maddison describes it, the low base which provided for mass
employment in reconstruction efforts and the revival of the suspended Meiji Restoration to
catch up with the west once again. The main reasons for what spurred Japan's growth are
debated a lot on their marginal effectiveness but the most common ones are:

Socio political stability: After the end of WW II, Japan was highly stable under the SCAP. It is
culturally a homogeneous society with no stalled internal rebellions like the Chinese or Korean
civil wars. It's literacy rate was an outlier in Asia. Their labor markets had been one of the most
stable in the world with strong unions and permanent employment.

Demilitarization: Complete demilitarization helped release a lot of economic surplus that was
directly put for nation building. This was not the first time that demilitarization had been used
to boost the economy though. The Japanese had used a similar strategy during
the Meijirestoration by breaking up the Tokugawa military. This break up released hundreds of
military personnel, engineers, scientists as well as normal workers employed by military
factories.

Masaru Ibuka and Akio Morita, co-founders of Sony were both Naval Engineers in the Japanese
Navy [3]

According to Angus Maddison, Japanese per capita GDP increased by 8.3 percent every year
from 1956 when the demilitarization was complete till 1973.

Extremely high labor productivity: This is an extension of point 2. Military personnel and
people employed by the military provided Japan with one of the most disciplined workforces
ever created. Japan had a literacy rate comparable to Germany and years ahead of other Asian
countries and the intensive nature of rice cropping, the dominant occupation made sure the
Japanese were used to working long hours. The high literacy rate boosted labor productivity
and competitiveness of the Japanese economy.

This had an enormous impact in facilitating economic catch-up. I visited Japan for a month in
1961—the year of Jimmu prosperity when GDP rose 1 per cent a month. I visited the Sony
factory founded by Akio Morita and Masaru Ibuka (ex-naval engineers). It produced simple
transistor radios,the foremen had PhDs in physics and all the operatives working and living in
the factory had high school education. I had the same impression of efficiency in the
Ishikawajima Harima shipyards, in riding the bullet train from Tokyo to Kyoto, and in the Bank
of Japan, the Economic Planning Agency, the Ministries of Education and Agriculture, where
one could find ten economists in a room all fresh and eager to talk after their morning
calisthenics [4]

Demographic Dividend: Japan's demographic dividend's timing was impeccable. The

demographic transition allowed for a very high workers to population ration and historically
lowest dependency ratio.

Japan saw in 1950 what China saw in the 80's and India is seeing now [5]

High Savings Rate: Japan was and still is a very frugal society. The high savings rate led to rapid
capital accumulation in Japan compared to other war torn countries and gave the government
an extraordinary ability to spend on infrastructure projects. At one point, Japan's per capita
GDP was increasing at 8.3 percent per year because of the savings rate.

Bonhomie with the United States of America: Japan was a key ally of the United States of
America since day 1 of the American occupation. It enjoyed a lot of preferential access to global
markets by virtue of being an American ally and fueled American consumption with a very
competitive exchange rate**. It allowed Japan to become a founding member of OECD, an early
member of GATT and take a lead in establishing the ADB.

A Culture Programmed to Succeed: I give a lot of emphasis on the national character and
culture of a country because aggregate culture influences economic growht to a very large
extent. Japan was and still is a culture programmed to succeed and prosper. Take a look at the
Japans Hofstede 6-D culture scores,Japanese society scores high in Masculinity, Uncertainty
Avoidance, Pragmatism and scores low in indulgence
Masculinity: A high masculinity score combined with a low score in individualism makes Japan
one of the most competitive societies in the world where people are the most motivated when
they are competing together as a team against other teams. Japanese workaholic nature is
another manifestation of this.

 Uncertainty Avoidance: At 92, Japanese society is one of the most risk averse countries
in the world. This shows in their attention to detail, attention to product quality and
meticulous nature of risk assessment and surveys before starting a project.
 Pragmatism: At 88, Japanese society is one of the most pragmatic society in the world.
Thrift, saving for the future and adopting modern education and customs to succeed are
hallmarks of Japanese culture. Corporate Japan since the beginning invested a lot on
R&D and companies prioritized long term growth over quarterly profits.
 Indulgence: Japanese society with a score of 42 is a society of restraint. The high savings
rate and less emphasis on leisure are manifestations of the same.

In conclusion, Japan grew fast and regained its pre WW II level within 15 years because of a
resilient culture, a good jump start given by the American occupation, demilitarization, high
early emphasis on education and the timing of its demographic dividend.

Acknowledgement:

[1] Perkins, Dwight H., Steven Radelet, David L. Lindauer, and Steven A. Block. "Economics of
development." (2012).
[2] The Cold War, Globalization and the Effect on the First World Economies
[3] About | Sony UK TEC
[4] Maddison, Angus. Contours of the world economy 1-2030 AD: Essays in macro-economic
history. Oxford University Press, 2007.
[5] Cloud, or silver linings?
[6] Japan - Geert Hofstede

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