Princes of the Yen by Werner Richard

Author:Werner, Richard
Language: eng
Format: epub, pdf
ISBN: 9781317462194
Publisher: Taylor and Francis

Pillars of Growth

Japan’s postwar modification of the war economy was hooked on success. It needed continued high growth in order to remain viable as a system. As we saw, in Japan’s war economy the profit motive had been replaced by the goal of market share expansion. Shareholders received low dividends but were rewarded by rising share prices, reflecting the reinvested profits. So continued growth was necessary to keep shareholders content. The same applied to managers and employees. In the war economy system they were motivated by moving up the corporate ladder. Pay scales at large firms began modestly but rose quickly. To keep the promise of lifetime employment and ever-rising salaries, continued high growth was necessary. Finally, high and rising standards of living would appease the population, which had little political say in the system—and a lower quality of life than in Europe or America. In other words, the war economy needed high economic growth to satisfy all interest groups.

Growth, however, was ultimately based on exports. Although they accounted for less than 15 percent of GDP in the 1990s, their importance had been larger. Domestic demand had been suppressed and domestic prices kept artificially high to increase savings. The goods that were produced with the overinvestment had to be sold abroad.

Without continued growth, the system was unsustainable and would have to be modified at the very least. The ability to grow fast rested on two pillars. One was a world trade system (read that of the United States) that allowed Japan to eat into everybody else’s market share. In exchange for the strategic military benefits, the United States allowed the continuation of the war economy. The second pillar was the ability to constantly allocate new credit to productive sectors. MITI helped in their identification. Drawing on its advice, the BoJ princes allocated credit. Unproductive sectors could not obtain purchasing power. This way Japan quickly moved up the value-added ladder, from textiles to steel to automobiles to semiconductors and consumer electronics.

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