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NPS ARCHIVE 1997. Q^ TSAO, H. NAVAL POSTGRADUATE SCHOOL Monterey, California THESIS THE ANATOMY OF JAPAN'S POSTWAR ECONOMIC DEVELOPMENT by Hsiung Yuan Tsao September, 1997 Thesis Advisor: Edward A. 01sen Approved for public release; distribution is unlimited. Thesis T822797 OXLIBRARY CA C3943<;101 DUDLEY KNOXLIBRARY NAVAL POSTGRADUATE SCHOOL MONTEREY, CA93943-5101 REPORT DOCUMENTATION PAGE Form Approved OMB No. 0704 Publicreportingburdenforthiscollectionofinformationisestimatedtoaverage 1 hourperresponse, includingthetimeforreviewing instruction, searchingexistingdatasources,gatheringandmaintainingthedataneeded,andcompletingandreviewingthecollectionof information. Sendcommentsregardingthisburdenestimateoranyotheraspectofthiscollectionofinformation, includingsuggestions forreducingthisburden,toWashingtonheadquartersServices,DirectorateforInformationOperationsandReports, 1215 Jefferson DavisHighway, Suite 1204,Arlington, VA22202-4302,andtotheOfficeofManagementandBudget,PaperworkReductionProject (0704-0188)WashingtonDC20503. 1. AGENCYUSEONLY (Leaveblank) 2. REPORTDATE 3. REPORTTYPEANDDATES COVERED September 1997 Master's Thesis 4. TITLEANDSUBTITLETheAnatomyofJapan'sPostwarEconomicDevelopment 5. FUNDINGNUMBERS 6. AUTHOR(S)HsiungYuanTsao PERFORMINGORGANIZATIONNAME(S)ANDADDRESS(ES) PERFORMING ORGANIZATION 7. 8. NavalPostgraduateSchool REPORTNUMBER MontereyCA 93943-5000 9. SPONSORING/MONITORINGAGENCYNAME(S)ANDADDRESS(ES) 10. SPONSORING/MONITORING AGENCYREPORTNUMBER 11. SUPPLEMENTARYNOTES TheviewsexpressedinthisthesisarethoseoftheauthoranddQnotreflecttheofficialpolicyor positionoftheDepartmentofDefenseortheU.S. Government. 12a. DISTRIBUTION/AVAILABILITYSTATEMENT Approvedforpublicrelease; 12b. DISTRIBUTIONCODE distributionunlimited 13. ABSTRACT(maximum 200words) ThisthesisexaminestheanatomyofpostwarJapaneseeconomicdevelopment. Itisillustrated bythereform andreconstruction era(1945-52)andthosefactorswhichcausedtheJapaneseeconomytogrowduringthe 1953-73 period. Furthermore, on thebasis ofJapaneseeconomicsuccesses,theroleoftheJapaneseinworldaffairsagainbecameimportant However,dueto theworld experiencingeconomicinflationand anoil shockafter 1974,theJapaneseeconomyalsoexperienced slowergrowth. Discussed indetail are thosefactorsthatmadetheJapaneseeconomyslowdowninthisperiod. Thisthesisstresses thethreedecades ofJapaneseeconomicdevelopmentafterWorldWarII. EvaluationoftheJapaneseeconomyisnecessarytoanalyze itsweaknessesand strengths which will shapeits futuredevelopmentandcompetitiveness. Inparticular, theendofColdWar broughtnewkindsofthinkingand concernaboutwhattypeofproblemsJapanmight faceinthenextcentury. Ofcoursethoseissues includeregionalism, economicstrategyshiftsaftertheendofColdWar,andintricatemajorpowerrelationsamongJapan,Chinaand theUnitedStates. In reality thepost-ColdWarchallengesarealsoaturningpointforJapan,compellingitto deal withnew problemsandtodecidewhat kind ofrolesitisgoingtoplay. 14. SUBJECTTERMS Anatomythe JapanesePostwarEconomicDevelopment 15. NUMBEROFPAGES 148 16. PRICECODE 17. SECURITY 18. SECURITY 19. SECURITY 20. LIMITATIONOF CLASSIFICATION OF CLASSIFICATIONOFTHIS CLASSIFICATION OF ABSTRACT REPORT PAGE ABSTRACT UL Unclassified Unclassified Unclassified NSN7540-01-280-5500 Standard Form298 (Rev. 2-89) PrescribedbyANSIStd. 239-18 Approved for public release; distribution is unlimited. THE ANATOMY OF JAPAN'S POSTWAR ECONOMIC DEVELOPMENT Hsiung Yuan Tsao ROC. Lt. Col., Military Police B.A., Chinese Military Academy, 1983 Submitted in partial fulfillment ofthe requirements for the degree of MASTER OF SCIENCE IN MANAGEMENT from the NAVAL POSTGRADUATE SCHOOL September, 1997 ArtVWt ftPS -7/fo// ^limW WT-.CA Tscko, VV 60^ ;auorumr GRADUATFSCHOOL DUDLEY KNOX LIBRARY NAVAL POSTGRADUATE SCHOOL MONTEREY, CA93943-5101 ABSTRACT This thesis examines the anatomy ofpostwar Japanese economic development. It is illustrated by the reform and reconstruction era (1945-52) and those factors which caused the Japanese economy to grow during the 1953-73 period. Furthermore, on the basis of Japanese economic successes, the role ofthe Japanese in world affairs again became important. However, due to the world experiencing economic inflation and an oil shock after 1974, the Japanese economy also experienced slower growth. Discussed in detail are those factors that made the Japanese economy slow down in this period. This thesis stresses the three decades ofJapanese economic development after World War II. Evaluation ofthe Japanese economy is necessary to analyze its weaknesses and strengths which will shape its future development and competitiveness. In particular, the end ofCold War brought new kinds ofthinking and concern about what type ofproblems Japan might face in the next century. Ofcourse those issues include regionalism, economic strategy shifts after the end ofCold War, and intricate major power relations among Japan, China and the United States. In reality the post-Cold War challenges are also a turning point for Japan compelling it to deal with new problems and to decide what kind ofroles it is going to play. .. VI TABLE OF CONTENTS INTRODUCTION I. 1 REFORM AND RECONSTRUCTION II. 9 ECONOMIC DEMOCRATIZATION A. 9 1. The Breakup ofthe Zaibatsu 9 a. Breakup the Holding Companies 10 b. Set up the Laws 11 2. Land Reform 12 3. Labor Democratization 16 RECONSTRUCTION AND STABILIZATION B. 19 THE AMERICAN CONTRIBUTIONS DURING THE C. OCCUPATION PERIOD 23 1. Breakup the Monopoly 23 2. Wake the Labor and Peasant's Consciousness 25 3. Assist the Land Redistribution 25 4. Provide a Peaceful and Stable Environment 26 END OF THE OCCUPATION D. 27 m. THE RAPID ECONOMIC GROWTH PERIOD 29 THE INTERNAL FACTORS A. 29 1. Aggressive Behavior by Firms 29 a. Accelerated Toward Professional Managers 30 b. Developed "Product-Monopoly Busting" 31 vn c. Make Profits Based on Bold Business Expansion 31 2. Advances in Technology 32 3. The Labor Force 34 a. High Education ofLabor Force 34 b. Decreased the Labor Force in Low-Productivity Positions 34 4. Capital Stock 35 a. Business and Managerial Skill Optimize the Economic Growth 35 b. High and Rising Saving Rate 36 5. Government Policies 37 EXTERNAL FACTORS B. 39 The Role ofKorean War 39 1. 2. The Establishment ofthe International Monetary Fund 42 IV. THE SLOWDOWN IN GROWTH 47 SLOWER CAPITAL FORMATION A. 47 END OF TECHNOLOGICAL CATCH-UP B. 49 HIGHER ENERGY COSTS C. 50 D. DIVERSIFICATION OF SOCIAL GOALS 53 SLUGGISH WORLD ECONOMIC ENVIRONMENT E. 58 A CFIANGING LABOR MARKET F. 59 SLOWER PRODUCTIVITY GROWTH G. 65 AN EVALUATION OF THE JAPANESE ECONOMY V. 69 A. APPRECIATION OF TFIE JAPANESE YEN 70 Vlll