Japan’s democratic developmental state which delivered high growth, poverty reduction and company competitiveness in the post-Second World War period until the 1990s when it stagnated, still offers African countries an alternative model for development.
In the aftermath of Japan’s surrender in 1945, the Allied Occupation Powers forced it to democratise, demilitarise and open up the economy. In 1946 the Emperor of Japan renounced his supreme power. In the same year, the country adopted a new constitution, pushing Japan to democratise, giving citizens equal rights, bringing formal equality to women and entrenching trade union rights.
The economy was opened up to all. The allied powers pushed for land reform to break the powers of the land barons, giving land to ordinary peasants working the land. They broke up many of the large firms, called zaibatsu, owned by powerful families. Companies had to give shares to the public. This was an attempt to break up the old elite associated with Japan’s imperial ambitions, war effort and militarisation.
Ordinary workers were given greater rights in the workplace, the right to collective bargaining, to organise and to strike. In the 1950s in a fierce national debate, the country rejected rearming in favour of going all out for economic growth, by developing new economic sectors, with the aim of increasing exports.
Except for steel which is the input for many manufacturing sectors, and copper which the country mines, Japan imports all its raw materials – coal and crude oil, and food, such as corn, wheat and soybeans from abroad.
ECONOMICS In 1956, the government issued its Economic White Paper, which argued for growth through modernisation of the economy. The government used cheap state loans, tax incentives and trade protection for infant industries to develop its economy.
When one industry was successfully created, the country moved on to create newer different ones. The aim was to create local industries which the country did not have which could compete abroad. The Ministry of International Trade and Industry (MITI) was key, identifying new markets abroad, developing local infrastructure and licences for the import of new technology and raw materials to develop local industry.
MITI would steer raw material and technology import licences to industries identified for development. It provided special tax breaks to companies trying to penetrate foreign markets, and gave such companies deductions on profits they earned abroad. The country’s monetary policy focused on making it easier to promote exports, by keeping the currency low.
The country maintained low interest rates to encourage fixed investment. It incentivised individual saving by giving tax breaks to small deposits, especially if they were made through the stateowned postal bank.
The Japanese government have used individual and corporate savings in the postal bank to fund capital investments, social infrastructure and small businesses through a Fiscal Investment and Loan Programme (FILP). The funds are used through the Japanese Development Bank.
The country introduced high tariffs to competing imports and quotas to the sectors it was developing. The JDB provided “policy” loans to industries which provided inputs or services for sectors identified for development. When the government established the IT industry, it invited IBM to set up shop in the country, on condition that it shared its technology with Japanese companies. The Japanese government bought locally produced computers which stimulated the local industry.
The country introduced long terms plans, developed by the Economic Planning Agency, carefully planning The Japanese Model every sector, using statistical evidence and data. The plans set out the outputs, infrastructure targets and social welfare needs. Chalmers Johnson, in his classic work on the developmental state, has described the Japanese government of purposefully orchestrated economic growth.
Japan has been successful in using carefully thought out evidence-based policies, market information and the partnership between the public sector and business to “modernise the production processes” of companies to produce products that can be competitive abroad. As the economy grew, the plans shifted to improving the quality of life, protect the environment and to improve welfare. By the 1970s when the economy expanded, the government increased welfare, public health and pensions.
The Japanese system of company welfare, including long-term employment, meant that workers often were not only loyal to the company, but felt responsible for the survival, competitiveness and productivity of the company. Company welfare included companies providing housing, skills and pensions for their employees. Companies set up industry-relevant educational institutions.
The country introduced merit within the public and private sectors, equitable access to quality education, health and public services, balanced with company welfare, and later government welfare, which helped to bring relative social peace. Furthermore, the government went all out to provide quality education, combined with the skills training by the private sector, and this fuelled economic growth. Japan had what is called enterprisebased trade unions, which at the plant level struck deals with management.
Independent enterprise trade unions then form networks or partnerships with enterprise-based unions at other firms. Trade unions at one plant consisted of both blue and white collar employees. Every employee who joined the firm automatically became a member of the enterprise trade union.
Wage deals depended on the specific conditions at the firm In 1955, the government launched a society-wide campaign to improve productivity, using Japanese “methods”, called “The Three Guiding Principles of the Productivity Movement”. It argued the “government and the private sector shall cooperate” to “prevent loss of employment”, that labour and management “shall cooperate” to “achieve productivity improvement” “based on the circumstances of the individual corporations” and that the “fruits of productivity improvement shall be distributed fairly to managers, workers and consumers”, according to the “actual condition of the national economy”. Japanese analyst Sumiko Ebisuno wrote:
Corporations are called upon to act from the standpoint of the national economy and continue to employ excess personnel resulting from the improvement of productivity. In order to reconcile the improvement of productivity and the securing of employment, two things that are incompatible, corporations, departing from conventional business management principles, came to place a priority on share expansion rather than the maximisation of profits. As part of the deal, business expanded through creating new markets, rather than cutting employment.
“Corporations were not greatly pressed to return to high short-term profits to stockholders; therefore, they could carry out large sales at small profits” instead of focusing on maximising profits at all cost. Japanese companies were encouraged to expand market share and create jobs. Japanese companies were expected to expand their markets, secure local jobs, and raise wages in line with productivity and profits. The emphasis was put on the “fair distribution of productivity improvements”.
After the Second World War entirely new parties were formed. The Japan Socialist Party (JSP) was formed in 1945, by supporters of smaller pre-war left wing parties. It supports a socialised economy. In 1955, there was a consolidation of Japan’s parties, with the mergers of left wing smaller parties into the Social Democratic Party (SDP) and the Liberal Democratic Party (LDP). The LDP held power uninterruptedly since its formation in 1955 until 1993. It has been pro-business and pro-US.
It oversaw the implementation of the developmental state. Between 1967 and 1993, the period of Japan’s high growth phase, the country was dominated by the LDP, either alone or in coalition, but had several large parties competing with it. From 1955 on the JSP was the main opposition party. The JSP was supported by trade unions, especially the public sector unions. A smaller Japan Communist Party has retained minority support, securing 10% averages in the 1970s. The JSP renamed itself the Social Democratic Party (SDP) in 1991.
From the late 1950s onwards the dominant LDP pursued consensus-style politics, offering policy concessions in parliament to the opposition parties, in return for support for its export-led growth strategy. Unlike in Africa, where dominant governing parties often steamrolled the opposition parties, the LDP co-opted opposition, and almost co-governed and co-legislated around a core set of national priorities. Between 1994 and 1996 SDP chairman Murayama Tomiichi became the first socialist prime minister of Japan since 1948.
Throughout Japan’s high growth period, it had a robust civil organisation space, which embarked on public protests, sit-ins and boycotts over cuts in welfare and attempts to circumscribe democratic freedoms, opposed the adoption of nuclear power as a source of energy, and disputed the country’s close alliance with the US.
This article has previously appeared on The Thinker Journal, its has been republished with permission