|Japanese political economy
– from mercantilism to a corporatist developmental state
♦ Mercantilism and Overseas Military Invasion
The Japanese political economy between the Meiji period and the prewar period was guided by mercantilism which endorsed the primacy of the state, national security, and military power in the organization of national economy and pursued a defensive foreign economic policy.
Its central idea was that economic activities and the market should be subordinate to the goal of state industrialization and national interests, which helped to support policies of colonial expansion in Korea, Manchuria of China, and other Southeast Asian countries and partially contributed to the military domination of national economy in the 1920s-30s.
♦ Export-led Economic Development Strategy
In post-war era, independence in the Third World became a powerful force in the world, and colonial expansion was out of fashion. Overseas expansion was no longer a way to seek resources and enhance national wealth. In Japan, economic development has been based on “export-led industrialization.”
What does it mean by “export-led industrialization?” ELI was directed at creating a specialized role in the world economy rather than creating a “balanced” domestic economy. This implies that a country may have an “unbalanced” industrial structure, which would be determined by its “comparative advantage” in the world economy. That is exactly what Japan did and it created a model followed by East Asian countries and later Southeast Asian countries.
What are the Merits? First of all, this strategy overcame the problem of a small home market by producing for the international market and profiting from its vast supply of cheap labor. Second, export helped to pay off the debt quickly and earn foreign exchange that Japan need for domestic industrialization. Third, export-driven production called for efficient industries that could compete in the world market, particularly faced with the opportunity generated by dynamic changes in the structure of the world economy and de-industrialization in the developed industrial countries in the 1960s-1980s.
Why ELI became successful? The success of ELI was the result of a combination of internal and external variables. Among the internal factors, the government played a decisive role in the process of industrialization.
What other key features? Such a strategy seeks rapid industrialization initially by exporting relatively cheap products of labor intensive industries, such as textiles, and then by exporting higher value-added products of more capital-intensive industries, such as iron and steel, shipbuilding, and machinery, and finally by exporting more products of technology-intensive industries.
Explaining the three industries by using examples
♦ Corporatist Developmental State
Since the 1950s, Japan has evolved into “a corporatist developmental state” in which the state intrudes into economic operations of individual enterprises with various measures intended to promote national industrial policies. National bureaucratic ministries, such as the Ministry of International Trade and Industry (MITI) and the Ministry of Finance, worked together with corporate conglomerates (such as Mitsui, Mitsubishi, Sumitomo, Fugo, Sanwa, Dai Ichi Kangyo Bank, Toyota, and Hitachi) to develop economic strategy and sectoral industrial policies to promote the development of strategic industries and the adjustment of its economic structure to meet the needs of domestic market and structural changes of the world economy.
According to Robert Wade and Chalmers Johnson, two of the most scholars in the field, Japan is the leading example of a corporatist developmental state. In a corporatist developmental state, first, the state charters or creates a small number of industrial interest groups in return for which it claims the right to monitor and guide them in order to discourage the expression of “narrow” conflicting demands. Second, while free market theory emphasizes the efficient allocation of resources as the principal force for economic growth, the governed market theory or the corporatist developmental state emphasizes the capital accumulation as the principal force for growth. Third, it also emphasizes the corporatist relations between the state and the private sector as the basis for state’s market guidance and the favorable environment for a sustainable economic development, because only in such a corporatist relationship can the state have enough autonomy to influence the allocation of resources in line with a long-term national interest, which is often in conflict with short-term profit maximizing of private actors.
♦ What Explains Japanese Economic Success?
Japan presents a model of state-led economic development that asks an interesting question: What has made the Japanese economy a success? Several factors can be summarized as follows:
the political stability provided by Japan’s one-party dominant democracy for most of the postwar period;
the autonomy of highly skilled government bureaucrats to devise and implement economic policies without political interference;
the use of market forces to promote export-led industrialization under the active and effective government direction;
mass literacy and universal access to high-quality education, and
the channeling of Japanese nationalism and traditional cultural values to support economic development. This model has inspired many Third World nations, especially the East Asian countries, and it has often been used to justify repressive, authoritarian government in the name of rapid economic growth at the expense of political democratization as in post-Mao China and many other Third World countries.