Modern Japan, Japanese Economics, The United States and Japan

Capitalism, if by that loaded term we mean anything more than the current business customs of English-speakers, is a cloudy concept; but most authorities follow Joseph Schumpeter in seeing credit creation by, or through, a banking system as its distinctive feature. Historical experience suggests that pioneering, credit-based capitalism is effective on frontiers, before competitors have arrived and whittled profits below the level at which plant can be replaced and loans serviced. A steady-state capitalism in which markets, technology and productivity all stagnate is hard to imagine --- although present-day Japan may be coming close. But frontiers, or business opportunities, come in many forms that are often hard to spot ahead of one's rivals. Nevertheless, [Hayato] Ikeda, a former financial bureaucrat, saw open frontiers beckoning to Japan from all points of the social and political compass when he announced his income-doubling scheme in 1960, by which year Japan had moved from the ravages of its own futile wars to the sunlit security of being the key Cold War ally of the US, the world's richest and most powerful nation.

Japan's own demography, a key economic frontier, was then wide open. Most of the population was of working age, with fewer non-workers to feed. Rapid urbanization, and then the war, had already reduced its birthrate below the rates that are still prevalent in rural Asia, where babies are seen as potential hands to work, rather than mouths to feed and minds to fill. On top of its own minor baby-boom in the immediate postwar years, Japan had taken in six million returnees from its former empire, mostly young, hungry and industrious. (One was Toshiro Mifune, soon to be japan's first international movie star.) Conversely, wartime privations and erratic medication meant relatively few old people lived beyond their productive years.

Japan's geographical frontier, far from having contracted after defeat, became, in economic terms, more open, when the US, the world's richest market, agreed to accept Japanese products with no reciprocal opening of the Japanese market. "What Japanese market?" one old Japan hand sneered, surveying the shacks and sheds of its war-wrecked cities.

The reviving Japanese domestic economy gave local manufacturers beginners' slopes on which to practice: first to equip every home in the country with an electric fan, an automatic rice boiler and a motorized bicycle, later a color TV, an air-conditioner and a car --- all easily recognizable as the seedbed produce of the Japanese industries that would soon dazzle the world. War-razed factories were rebuilt with state-of-the-art technology, obsolete industries such as coal mining resolutely discarded, cameras and binoculars, where Japan already had a war stimulated lead, financed out of domestic savings.

A minimum of foreign exchange was needed for patents, raw materials and advanced machinery to kick all this off. US procurements for the Korean War ("a gift from the gods," said Prime Minister Shigeru Yoshida), supplied hard currency, well before the Japanese export industry was able to earn its own. Reputedly, the first $200 million came from the earnings of Japanese "pan-pan" girls entertaining US troops on R&R, from Korea. Every dollar earned was hoarded and husbanded, although Japanese early-bird exporters were allowed to use part of their earnings to import lemons, still big sellers in citrus-hungry Japanese winters. Why were Americans so munificent to their former assailant? Japan's geographical position, on the far side of an ocean the US needs to control for its own defense, and close to China and Russia, protagonists in the Cold War, supplied the sense of mutual advantage on which lasting international friendships are built. Japan has trodden its only important political frontier warily but, as long as the Cold War lasted, with considerable success. Apart from the martyred islanders of Okinawa, a fifth of whose arable land is devoted to American bases, training grounds and golf courses, few Japanese think of the US troops stationed in mainland Japan as an army of occupation, or indeed think much about them at all. Fewer still feel threatened by China or Russia. Americans have, in the meantime, grown rather fond of Japan, an untroublesome ally with safe streets and drinkable water, and unless the Japanese stop investing in US Government Bonds, this mood may well last.