Japan: The Post-WW2 Rise, the 1980s Peak, and the Decline – A Simple Theory
by Mike Kimel
Japan: The Post-WW2 Rise, the 1980s Peak, and the Decline – A Simple Theory
Cross-posted at the Presimetrics blog.
A lot has been written about the disaster in Japan. I don’t have much I can add to that, except that like everyone else (or at least everyone civilized), I am so very sorry that it happened. (What is with the folks talking about Pearl Harbor? Seriously. What is that about?)
Still, in reading about the tragedy, I had a thought about Japanese economic history and I’d like to expand on it in this post. But I’d like to lead off by pointing out I am not an expert on Japan. That means y’all can feel free to correct me where I’m wrong, but it also means I started off by going to this website, which has some cool country studies. The website:
contains the on-line versions of books previously published in hard copy by the Federal Research Division of the Library of Congress as part of the Country Studies/Area Handbook Series sponsored by the U.S. Department of the Army between 1986 and 1998. Each study offers a comprehensive description and analysis of the country or region’s historical setting, geography, society, economy, political system, and foreign policy.
Let me start by quoting liberally from Japan country studym specifically the section on bureaucrats.
Although the United States occupation dismantled both the military and zaibatsu establishments, it did little, outside of abolishing the prewar Home Ministry, to challenge the power of the bureaucracy. There was considerable continuity–in institutions, operating style, and personnel– between the civil service before and after the occupation, partly because MacArthur’s staff ruled indirectly and depended largely on the cooperation of civil servants. A process of mutual co-optation occurred.
In trying to discover “who’s in charge here,” many analysts have pointed to the elite bureaucracy as the people who really govern Japan, although they composed only a tiny fraction of the country’s more than 1 million national government employees. Several hundred of the elite are employed at each national ministry or agency. Although entry into the elite through open examinations does not require a college degree, the majority of its members are alumni of Japan’s most prestigious universities. The University of Tokyo Law Faculty is the single most important source of elite bureaucrats. After graduation from college and, increasingly, some graduate-level study, applicants take a series of extremely difficult higher civil service examinations: in 1988, for example, 28,833 took the tests, but only 1,814, or 6.3 percent, were successful. Of those who were successful, only 721 were actually hired. Like the scholar-officials of imperial China, successful candidates were hardy survivors of a grueling education and testing process that necessarily began in early childhood and demanded total concentration. The typical young bureaucrat, who is in most cases male, is an intelligent, hardworking, and dedicated individual. Some bureaucrats lack imagination and, perhaps, compassion for people whose way of life is different from their own.
The public’s attitude toward the elite is ambivalent. The elite enjoy tremendous social prestige, but members are also resented. They live in a realm that is at least partly public yet far removed from the lives of ordinary people. Compared with politicians, they are generally viewed as honest. Involvement of top officials in scandals such as the Recruit affair, however, had, to some extent, tarnished their image.
Japan’s elite bureaucrats are insulated from direct political pressure because there are very few political appointments in the civil service. Cabinet ministers are usually career politicians, but they are moved in and out of their posts quite frequently (with an average tenure of under a year), and usually have little opportunity to develop a power base within a ministry or force their civil service subordinates to adopt reforms. Below the cabinet minister is the administrative vice minister. Administrative vice ministers and their subordinates are career civil servants whose appointments are determined in accordance with an internally established principle of seniority.
In a 1975 article, political scientist Chalmers Johnson quotes a retired vice minister of the Ministry of International Trade and Industry (MITI) who said that the Diet was merely “an extension of the bureaucracy.” The official claimed that “the bureaucracy drafts all the laws…. All the legislature does is to use its powers of investigation, which for about half the year keeps most of the senior officials cooped up in the Diet.”
And now the change…
Administrative reform policies in the 1980s imposed ceilings on civil service staff and spending that probably contributed to a deterioration of morale and working conditions.
Still another factor limiting bureaucratic power was the emergence of an affluent society. In the early postwar period, the scarcity of capital made it possible for the Ministry of Finance and MITI to exert considerable influence over the economy through control of the banking system. To a decreasing extent, this scarcity remained until the 1980s because most major companies had high debt-equity ratios and depended on the banks for infusions of capital. Their huge profits and increasing reliance on securities markets in the late 1980s, however, meant that the Ministry of Finance had less influence. The wealth, technical sophistication, and new confidence of the companies also made it difficult for MITI to exercise administrative guidance. The ministry could not restrain aggressive and often politically controversial purchases by Japanese corporate investors in the United States, such as Mitsubishi Estate’s October 1989 purchase of Rockefeller Center in New York City, which, along with the Sony Corporation’s acquisition of Columbia Pictures several weeks earlier, heated up trade friction between the two countries.
The whole issue of trade friction and foreign pressure tended to politicize the bureaucracy and promote unprecedented divisiveness in the late 1980s and early 1990s. During the Structural Impediments Initiative talks held by Japan and the United States in early 1990, basic changes in Japan’s economy were discussed: reforms of the distribution and pricing systems, improvement of the infrastructure, and elimination of official procedures that limited foreign participation in the economy. Although foreign pressure of this sort is resented by many Japanese as an intrusion on national sovereignty, it also provides an opportunity for certain ministries to make gains at the expense of others. There is hardly a bureaucratic jurisdiction in the economic sphere that is not in some sense affected.
Repeatedly, internationally minded political and bureaucratic elites found their market-opening reforms, designed to placate United States demands, sabotaged by other interests, especially agriculture. Such reactions intensified United States pressure, which in turn created a sense of crisis and a siege mentality within Japan. The “internationalization” of Japan’s society in other ways also divided the bureaucratic elite. MITI, the Ministry of Labor, and the Ministry of Justice had divergent views on how to respond to the influx of unskilled, usually South Asian and Southeast Asian, laborers into the labor-starved Japanese economy.
Now a bit from Japan’s Administrative Elite by B C Koh(see pages 259, 260):
A decline in elitism can be seen in a number of trends: (1) a strong showing of universities other than Todai and Kyodai in the higher civil-service examination, (2) a notable increase in the proportion of private-university graduates who enter the higher civil service, and (3) advancement of “noncareer” bureaucrats to elite administrative positions.
Although Todai and Kyodai have consistently maintained their positions as the first- and second-largest sources, respectively, of successful candidates in the higher civil-service examination throughout the postwar period, their combined share of the total has frequently fallen short of 50 percent. In the eighteen-year period from 1970 to 1987, for example, the two top universities’ share fell below the 50-percent mark eleven times (see table 9 in chapter 4). This means that the majority of successful candidates in the higher civil-service examination came from other institutions of higher learning in those years. In the 1980s, private universities surpassed the 10-percent mark for the first time, reaching 12.6 percent by 1986 and 13 percent in 1987. In the ten-year period from 1976 to 1985 the number of private-university graduates who passed the higher civil-service examination increased 3.5 times.
If we examine the situation at the hiring stage, we find the same trend: a steady increase in the proportion of private-university graduates. Since 1980, private-university graduates who passed the higher civil-service examination had a greater probability of being hired than graduates of national universities. In 1983 and 1984, six in ten of the former, as compared with four in ten of the latter, were hired. In the ten-year period from 1976 to 1985, the number of private-university graduates who entered the higher civil service quadrupled.
A slight decline in the elitist character of Japan’s higher civil service is suggested by a steady increase in the number of “noncareer” civil servants who advance to elite administrative positions. As we saw in chapter 4 (table 8), graduates of the intermediate civil-service examination began to appear in grade-1 positions (assistant bureau chief, division chief, and senior-level section chief) in increasing numbers since 1974; in 1981, a graduate of the lower examination attained grade 1 for the first time, and a small but growing number of others followed in his footsteps in subsequent years. By 1986, the National Personnel Authority disclosed that two in ten civil servants at the rank of section chief or its equivalent and above in the national government had not gone beyond junior colleges, implying that they were “noncareer” bureaucrats.
So… a decade before the end of Japan’s economic miracle, the fabled bureaucracy that drove Japan Inc. started to erode – more of its members started coming from lower quality, private universities, it stopped being held in as high esteem by the public, it lost its ability to impose its will on the economy, and to boot (or perhaps I should say on a related note), it started to adopt new policies and philosophies being pushed by the Reagan administration. How long do you think it takes for something like that to have a long-term, possibly irreversible effect on an economy that used to be the envy of the world?
As an aside… ever notice how countries that adopt policies favored by right wing or libertarian think-tanks tend to have a few very successful years (with much crowing by those think tanks) followed by disaster? Be it Japan, Argentina, Russia, much of Eastern Europe, Ireland, Iceland, etc., it does seem that there’s a pattern. Heck, that pattern even applies to the US. I think even some of the promoters of those policies are starting to see that pattern. Its to the point where a lot of folks in those circles are trying to convince the public that Singapore, a country where the government’s role in the economy is larger and more intrusive than in most other countries, is an example of a libertarian paradise.
Very interesting post Cactus. Kudos!
A key sentence in the piece:
Still another factor limiting bureaucratic power was the emergence of an affluent society.
This is behind the collectivist, err “progressive” (sorry) instinct to raise taxes, particularly on the affluennt. But this is a sammy theory-in-progress and a side note.
Japan is a very conformist society, and while that has advantages, this is not a trait as well rewarded in the new economy. The US, on the other hand, is not. They value freedom and creativity. These are the traits more in demand today. That is why the US economy has outshined Japan over the last 20 years. We need to go with our comparitive advantage, not towards a more brilliant bureaucracy. The market is smarter than the most scholarly bureaucrat.
collectivist=progressive is a mischaracterization and gets deleted…send me a post proving it. I won’t argue meanings of collectivist.
I’m not sure I buy your arguement that Japans decline is because the elite became pedestrian. I’m don’t think the traditional view that Japans decline is because of Zombie banks and the emergence of cheaper Chinese labor fully explains things either.
How did a generation of economic Samurai, begat a generation of leaf eating wankers? In the West the reactionary arguement is that this is the price we pay for living in a morally degenerate Jewtopia. But this arguement cannot apply to Japan.
After the Pelopennsesian war Greek society flourished for one generation then abdicated itself and failed to reproduce. I am always amazed at the lack of continuity between generations.
I hope the sun is not setting on these remarkable people. I wish them the best.
Obviously this post doesn’t have proof. I would add to it, though, that it has more than timing going for it.
My formative years were the 1980s when Japan Inc was going to take over the world. And no mention of Japan was complete without MITI. Had you told someone in 1983 that MITI and thatrest of the bureaucracy was losing its grip they probably would have predicted an economic slowdown… unless they worked in the Reagan admin.
Merely stating that the private sector is wiser than some bureaucrat ignores how Japan got where it did until, say, 1983, and doesn’t explain the deterioration that took hold a few years later.
What the heck is a Jewtopia? And how does anything relating to Jews have much or anything to do with Japan? Speaking (awkwardly) for the tribe, we don’t have many members in Japan.
Very interesting. I studied a bit of the Japanese style and Deming (lesser Juran and Crosby) in the 80’s. Deming and an US Army NCO introduced Statistical Process Control to Japan during the occupation.
We might consider the idea that Kaizen, is an option of Zen in the world.
There was Zazen (monastic life) and then Kaizen (in the world).
Is the trend away from detachment? The route to elite may have been trod by seekers, who now are felling the need for the monastic?
From this crisis I see a lot of civility remains in the Japanese person.
The “good of the many” is an admirable perspective with more place in the world.
Merchantilism, not capitalism. What invisible hand do you refer to? The one with socialized risk? One with an accomodating central bank inflating buubbles, and destroying liberty? The one with no regulations, but huge scope to run up the trading abuses?
Would a collectivist be more or less incented to volunteer to work at Reactor 3? Is the wealth of a nation confined to the top 1%?
Or is the wealth the accumulation of all the “households”?
Good post but Reagan Administration? Come on, get your chronology right.
“During the Structural Impediments Initiative talks held by Japan and the United States in early 1990, basic changes in Japan’s economy were discussed:”
This is during the Bush Administration. Clinton ended the Initiative in 1993.
“A new approach was added in 1989. The so-called Structural Impediments Initiative was a series of talks designed to deal with domestic structural problems limiting trade on both sides. After several rounds of often contentious talks, agreements were reached in April and July 1990 that promised major changes in such sensitive areas as Japanese retailing practices, land use, and investment in public works. The United States pledged to deal more effectively with its budget deficit and to increase domestic savings. United States supporters saw the Structural Impediments Initiative talks as addressing fundamental causes of Japan-United States economic friction. Skeptics pointed to them as ways for officials to buy time and avoid an acute crisis in Japan-United States relations. The Bill Clinton administration decided to end the Structural Impediments Initiative in the summer of 1993 as a framework for dealing with United States-Japan bilateral relations.”
This sounds like crazed right wing zealotry, eh?: “The United States pledged to deal more effectively with its budget deficit and to increase domestic savings.”
The Japanese system paid attention to the need to let old style industries fade away.
I was involved with the US–Japenes Textile talks in the 1970s. The Japanese had no problem with the concept that textile production was goint to shift from Japan to the other East Asian countries like Korea and Taiwan. What they were tring to arrange in the textile talks was to make the transition gradual and slow. In this way the loss of textile employmen was gradual and throught the life-time employment system the large Japanese trading companies could retrain and shift this labor from the old textile industries to the newer, faster growing industries that were also owned by the same large corporations. It was just another aspect of how the Japanese system of leadership from the top worked.
And that is one of the lauditory aspect of Japans elite behaviour.
“Would a collectivist be more or less incented to volunteer to work at Reactor 3?”
In a multi-cultural society filled with rugged individuals, the chances of getting someone to jump on a granade, for the good of the many are slime to none.
Mike Kimel – “I should say on a related note), it started to adopt new policies and philosophies being pushed by the Reagan administration. How long do you think it takes for something like that to have a long-term, possibly irreversible effect on an economy that used to be the envy of the world?”
Can you identify the “new policies and philosophies being pushed by the Reagan administration” that Japan adopted from 1981 to 1988?
It appears that if you want to discuss these issues you could have referenced the “Relations with the United States” section of the same country study that you used in your main post. This section summarizes the economic trade situation of the 1980s that led to President Reagan’s requests for Japan to open up its market to foreign goods and change other economic practices that could enhance further international competition and support.
There were only three sector-specific trade agreements negotiated between Japan and the U.S. during 1980-1988, and no major formal market opening initiatives negotiated according to the International Trade Administration of the U.S. Department of Commerce.
Thirty-four sector-specific agreements and all formal market opening initiatives after the 1953 Treaty of Friendship, Commerce and Navigation Between the United States of America and Japan were negotiated after 1988. The Obama Administration launched the The U.S.-Japan Economic Harmonization Initiative in November 2010.
Is the trend away from detachment
Increasing this young generation of Japanese males feels less need for females incarnate, and instead pursues self pleasure with anime. They are abstracting themselves from the world alright, but I’m not sure if they view this as a pathway towards the ethical existence proscribed by Buddha.
Mike Kimel – “As an aside… ever notice how countries that adopt policies favored by right wing or libertarian think-tanks tend to have a few very successful years (with much crowing by those think tanks) followed by disaster? Be it Japan, Argentina, Russia, much of Eastern Europe, Ireland, Iceland, etc., it does seem that there’s a pattern. Heck, that pattern even applies to the US. I think even some of the promoters of those policies are starting to see that pattern. Its to the point where a lot of folks in those circles are trying to convince the public that Singapore, a country where the government’s role in the economy is larger and more intrusive than in most other countries, is an example of a libertarian paradise.”
Can you identify the “policies favored by right wing or libertarian think-tanks” that “tend to have a few very successful years (with much crowing by those think tanks) followed by disaster” that apply to Japan, Argentina, Russia, Eastern Europe, Ireland, Iceland, and other nations? If you believe that there is a pattern then identifying the specific polices shouldn’t be difficult.
This should make for an interesting discussion considering that some key Democrats including President Clinton, and left wing economists played an active role in globalization initiatives which have led to the large U.S. trade deficits experienced with China and other nations.
Both are based on a platform of Social Justice. Also, it depnds on which “Progressives” your talking about. The Progressives of the early 1900’s, or Modern Progressives that control the Democratic Party and the Media?
Collectivist and Progressives use the same means to reach different goals. So in the end, both you and Sammy are correct.
I am not smart enough to contribute to this particular conversation but this statement:
“some key Democrats including President Clinton, and left wing economists played an active role in globalization initiatives which have led to the large U.S. trade deficits experienced with China and other nations.”
has had me thinking about putting in some serious time into attempting to figure out exactly how we ended up with the short end of the stick.
Also, where does Nixon come into play as far as International Trade?
Also, I couldn’t agree more with this statement:
“If you believe that there is a pattern then identifying the specific polices shouldn’t be difficult.”
I hope he responds, not because I think he is totally off base…..I am just curious as to why international trade policies can be labeled as “Right-Wing” or “Libertarian,” and also curious to find out that if there is a pattern of mistakes we are making….we should learn about them and fix it ASAP!
There are a lot of players who were involved in various phases of the current globalization efforts.
There are a lot of players who were involved in various phases of the current globalization efforts. Those who pretend that only right wing or libertarian think-tanks and individuals were involved are engaged in revisionist history. There is more to the story…
I think each country mentooned on that paragraph underwent privatization and deregulation. Many also got big reductions in marginal income tax rates and some got flat taxes.
I have been thinking trade policies have moved toward mercantilist features.
There was a post here yesterday about dumping and such. How do these trade policies reflect against “capitalism”? Even a skewed version?
The “dumping” notion is pretty idiotic. The accusation involves a country subsidizing industries in order to drive other countries competing industries out of business. If they do this they are subsidizing American consumers, not a bad thing in my book. Then they are supposed to raise prices once they have gained some sort of monopoly power. However there is too much worldwide competition, and industry can be reconstituted too quickly, to have monopoly power these days.
You look at dumping from the wrong point of view. The question is: How, and under what circumstances, by dumping, can I destroy my foreign competition? Now the notion is not so idiotic.
If you export into a market with inelastic demand, you need only produce a small quantity of a good to dramatically drive down its price. Since most of that good is still produced by the foreign competition, they lose most of the revenue. The foreign consumer is subsidized, but mostly by the foreign producers themselves. The foreign producers’ producer surplus is converted into consumer surplus. The foreign producers lose more than you do. If you export enough, you drive down the price enough that the foreign producers can no longer remain in business, and are destroyed, at very little cost to you. Walmart prospers, their factories close. And if your cost is naturally less than the foreign competition, or can be entirely externalized, it doesn’t even appear that you are dumping. Anyway, any up front cost can easily be recouped, once the competition is destroyed and the market taken over.
Many industries, many high tech industries, are not easily reconstituted. And where the foreign nation is governed by idiots, there is no need to fear effective countermeasures.
As for competition based in other countries, unless they adopt protectionist policies, the same tactic can be used against any of them.
“ It was just another aspect of how the Japanese system of leadership from the top worked.”
Leadership from the top? I am not so sure about that. I do not know about now, but back then many companies followed the practice of making long term decisions bottom up. Employees at the lowest levels would discuss the questions among themselves, and then make recommendations to the next higher levels, who would continue the process upwards to top management, who made the final decisions. The process took a long time, but everyone, even the lowliest workers, got a chance to be heard. The process fostered mutual loyalty between the company and its workers.
I’m no fan of ag subsidies, but that was an integral part of the bureaucracy’s view until the 1980s. (See one of the quotes I provided.) For something more concrete – consider the high profile privatization program seems to have occurred toward the late 80s (e.g., JAL). The ’80s saw a change in the MITI’s approach toward the economy and that had nothing at all to do with Bill Clinton.
MG and Yerom,
I’m pretty sure the post does not say the changes to which it refers are trade policies. But the countries mentioned in that paragraph (and Japan as well) all had a number of things in common that led to sme years of rapid growth but thta also sowed the seed of later destruction:
1. Privatization of industries previously regarded as key. (Funds generated were then spent – as if they were recurring – which boosted G which boosted GDP, and which in turn got the public and international money believing in an economic miracle in a stunning display that nobody has any foresight. I don’t understand how anyone can believe in Ricardian Equivalence after watching the results of the Cavallo plan, but then these days the folks on the Heritage side of the aisle like to pretend Argentina was never their baby.)
2. Reduced gov’t regulation / a lower profile for the gov’t in the economy. (A short time later the externalities came home to roost.)
Additionally, I think just about all of them engaged in tax reduction and lowering and flattening of marginal tax rates.
note that the “success stories” on the right that are long lasting are either tiny (Hong Kong), completely at odds with their beliefs (Singapore), or both (Chile… exactly how private do you think the copper mines are?).
Yerom’s comment deleted. I said I won’t debate meanings of collectivist.
Nice response to Sammy