Japanese Economy and the Government Essay

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The key of growth in Japan that achieved a rapid modernization since the Meiji Period lies? in centralized governmental system. Namely bureaucrats in the central government determine the direction and method for the country to develop and let local governments to follow their directions. As few local governments had sufficient administrative and financial resources before the WWII, the central government ordered the local governments to do various administrative tasks and provided them with necessary funds for that. This is how administrative activities were universally carried out all over Japan.The Meiji era marked the overthrow of the seven hundred year rule by the warrior class (Shoguns).

At this time, the population in Japan was classified as being 80-85% agricultural. In the following decades of Japanese confrontation with Western civilisation, the nation underwent a period of transformation. The Meiji Restoration was undertaken in the1860s by a group of young nationalists who launched a modernization program that gave a special emphasis to industrialization, centralization and the creation of a strong military capable of countering Western colonialist powers.The political objectives and mindset of the authorities during this era are to reform fiscal and monetary policies, with attention to the landmarks of the commutation of samurai stipends, establishment of monetized land tax, and investment in imported technology and industrial facilities in an effort to reverse the erosion of economic control by the shogunate.

Government regulation of the economy continued after the overthrow of the shogunate.At this time, agriculture and traditional industry remained the most productive sectors although there was rapid expansion of the modern industrial sector. There were investments with infrastructure building in banking, railways, shipping, posts and telegraphs, electric power and education. The government also promoted consolidation in the banking industry and military expansion.

Free market forces promoted growth, but government guidance enabled a fuller realization of the country’s economic development potential than would have been possible without manipulation by political authorities.However, government staff did not have expertise to run factories and companies; nor did they have enough revenue to subsidize all the strategic industries. The lack of funds forced the government to turn these incentives over to private business, which in return for special privileges, would accommodate the government’s goals. These family owned conglomerate businesses were called zaibatsu. The zaibatsu were strong supporters of the militaristic government that gained control of Japan.Due to the occupation of Japan from 1945 to 1952, Japan did not engage in the wave of nationalizations that occurred in the United Kingdom, France, and Italy.

The United States occupation of Japan resulted in the rebuilding of the nation and the creation of a democratic state and Japan emerged from the postwar period with three major public corporations for producing goods and services, and five government departments. This was also a period of land reform and zaibatsu dissolution. Breaking up the zaibatsu contributed to a lessening of concenration and a quickening of competition in the economy.Japan at this time rationalized industry, it imported and then improved foreign technology, it liberalized foreign exchange and trade sufficiently to gain entry into the organs of the world economic community. Following the end of the Allied Occupation in 1952, Japan emerged as a global economic power with reach far beyond its military might in the prewar period.

After the War, the Economic Growth and regional development were achieved applying the same mechanism, i. e. , the central government formulated policies and local governments followed the central government’s instructions.Three years after Japan’s independence, the newly-formed Liberal Democratic Party (LDP) achieved a majority in the Parliament of Japan. It has dominated the Japanese political system for most of the postwar era, either as the ruling party or as the leading member of a coalition government which would be unchallenged until the 1990’s. Through institutions such as MITI, the LDP government encouraged Japanese industrial development overseas while restricting foreign companies’ business within the country.

During the 1960s, the government, specifically economic-related ministries, established the tariffs and non-tariffs barriers for industry protection, restricted market entry and, allowing local corporations to grow rapidly by providing them with tax breaks and offering ingenious administrative guidance. This close involvement of Japanese government in the country’s industry produced accusations of protectionism and so the government has come to be obliged by the international commitment to liberalize trade and capital controls, which led to continual reduction of tariff rates and lifting up of other trade barriers.The government then shifted to structural policies, relaxing the application of the anti-trust law (which is an outcome of the post-war democratic reform) in encouraging mergers of major firms to resist the potential entry of foreign giants and allowed formation of cartels under various specified circumstances to encourage reorganization of the industry. This sort of consolidation of the government with the private sector quickly made Japanese companies strong enough to compete internationally.Simultaneous to the encouragement of growth-oriented industries, the government was also active in making the exit of declining industries – such as the coal industry in the early 1960s and the synthetic fiber industry in the mid-1970s. During the period from 1981 to 1983, the Provisional Commission for Administrative Reform (PCAR) made five recommendation reports on the privatization of public enterprises in Japan.

The three major public enterprises to be privatized were: Japan Tobacco and Salt Public Corporation (JTSPC), Nippon Telegraph and Telephone (NTT), and Japan National Railways (JNR).Unlike the first two organizations, in which the government monopolized the majority of shares, Japan National Railways (JNR) was broken down into seven blocks, six being passenger companies and one, a freight company. The privatization of JNR involved a special problem because of its large debt and so there was to be no shares held by the government. Although there was privatization, the government kept on protecting domestic industry, and this led to acquiring foreign currency and accumulation of wealth.

The governmental regulation and protection generated wealth enough to be distributed to make the whole Japanese people richer and thus obtain an entire support for the policies, while it induced collusion between ministries and corporation, and between ministries and the industry. While the rapid growth made the nation a rich country, rise in export induced international trade friction. This caused “Japan-bashing” by foreign countries against its protectionist policies, and forced Japan gradually to deregulate, introduce a principle of market mechanism, and promote trade liberalization.By then, however, many of industry areas gained a competitive edge enough to enter the international market, and the country kept growing while it opened up domestic market. There is no question that the Japanese government had a great influence in the economy. It was extensively involved in the development and operation of the nation’s infrastructure (roads, airports, power generation, and telecommunications services).

The government’s regulatory power enabled it to exert control over economic sectors and activities.It also used its resources and power to develop domestic industries through direct financial assistance to emerging or ailing industries and by setting various regulations to protect industries from foreign competition. This power was helpful when Japan was struggling to be competitive with a few countries such as the US. Now, the Japanese must compete against the US and other successful East Asian countries like Thailand, Vietnam, etc.

An increased competitive environment calls for maximum flexibility in the private sector but Japan suffers from a stifling level of regulation by the government.The government should delegate some of its responsibilities to the private sector. Government regulation also drives productivity down as individuals and companies devote a large amount of time to satisfy bureaucrats. This also contributes to the ill will many foreigners feel toward the Japanese since these regulations, while not intentionally designed to keep foreign goods out, nevertheless have this effect. While Japan has low official tariff, many other regulations are written to favor Japanese manufacturers and prevent infiltration of the domestic markets by foreigners.“If Japan fails to end industrial policy, its postwar developmentalism maybe judged a failure.

” In order for Japan to remain internationally competitive, it should raise productivity and lower consumer prices. For the Japanese economy to get back on a growth path, it is also necessary to raise its potential growth by promoting structural reform, such as fiscal reform, and reform of pension and medical insurance systems. Companies now must make swift business decisions in order to remain competitive.While there has been moderate deregulation, Japan’s relatively inflexible economic system still makes it difficult for Japanese companies to respond as quickly to competitive challenges as their foreign counterparts.

In the face of dramatic new economic challenges the Japanese system continues to change much too slowly.BibliographyEllington, L, Japan’s Economy: Government regulation, productivity and trade tensions,1995, Japan digest, retrieved 30 August 2007, htttp://spice. stanford. edu/digests/Japan/digest8. php Murakami, Y, An anti-classical political-economic analysis: A vision for the next century, Stanford University Press, 1996

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