Cars at the Nissan factory in Kanagawa, Japan

Secret of High Economic Growth in Japan

Secret of High Economic Growth in Japan

While at this moment Japan’s economy has been stagnant for decades, after WW2, there was a long period of high economic growth in Japan. The years between 1954 and 1973 are known as the period of the ‘Japanese Miracle’. During these years, the average growth rate was over 10% per year. Japan became the world’s number 2 in economic terms until China caught up with Japan in 2009. What were the factors that made this incredible growth possible?

Secret of High Economic Growth in Japan

Rapid Population Growth in 1960s Japan

After the decrease of the population in Japan due to WW2, the population started to increase again. This happened once the war was over just like in many other places in the world. In 1950, the population was 83 million and it rapidly expanded to reach 112 million in 1975. The average birthrate was 2.13 from the 1960s to the early 1970s.

This great increase in population made high economic growth easy as the domestic market expanded significantly. In those days, people were very eager to buy home electrical appliances that were luxurious and new at that time. Examples are TVs, refrigerators, and washing machines. These three appliances were called the ‘Three sacred treasures’, named after the three sacred imperial treasures.

High Economic Growth and the Labor Force

At the time, the salary of workers in Japan was on the lower end compared to the western workers. Also, the currency exchange rate for JPY was fixed at 1 USD for 360 JPY until 1971. This meant that Japan could produce products at a relatively cheap rate, gaining a big advantage in export.

There was another factor that helped propel Japan to great economic heights. Japanese people are known as workaholics for a reason. In general, they are loyal to the company and don’t mind working long hours. That’s because of some unique systems that were introduced to Japanese companies such as the ‘lifetime employment system’ and the ‘seniority system’. These systems made it possible for companies to grow, which helped the national economy grow in turn.

At this moment, 1 USD is about 110 JPY. The value of the Japanese yen has increased more than three times since the 1970s, and Japan has lost the advantage of a weak yen. Also, many newly industrialized countries such as China, South Korea, and countries in Southeast Asia have cheaper labor. Additionally, the quality of those products has gotten a lot better lately. This means that Japan has lost its edge on export. They also gained a lot of competition that made it harder to rely on strong export numbers to grow the economy.

High Economic Growth and Improvements to Technology

While, in general, Japanese people may not really be inventors, Japanese companies are surely good at making improvements for existing products. For example, the car industry had already developed in the USA in the early 20th century. At that time, Japan’s auto industry was still in its early stages. Then, Japan imported or imitated American cars. But they soon found out that American cars were too big for the narrow Japanese roads. So, Japan started to make smaller cars and improved the cars’ technology at the same time. Making more efficient and reliable cars in comparison with the American cars, Japanese cars took off.

The same happened in the field of electronics. The American tape recorders were too big for small Japanese homes and Japanese tastes. So, Sony made the portable WALKMAN which became a gigantic success all over the world. This was not all; the first daily-use laptops, solar cells, and LCD screens were also produced by Japanese companies.

High Economic Growth and Japan’s Success in Export

As explained above, Japan made high-quality products that they started to export. These products were widely accepted in western countries because of the high quality that Japanese products soon became known for. Export of manufactured products is quite important for Japan. This is because there are few natural resources such as petroleum or gas in Japan.

That means that Japan needs to import natural resources. And in order to pay for that, they rely on the export of industrial products to get foreign currency, especially US dollars. Ever since the economic boom in Japan, this has become the typical style of Japanese business.

Post-war Infrastructure Development

During the economic boom years, Japan has worked hard at its large and modern infrastructure such as expressways and Shinkansen trains. The Shinkansen started its service in 1964 between Tokyo and Osaka, and now, you can even go to islands Hokkaido and Shikoku by train. Its fastest speed is 320km/h, so you can go to Osaka from Tokyo only in 2 hours and a half. Because of these networks, manufacturers can distribute their products throughout Japan very quickly and efficiently.

High Saving Rates in Japan

Lastly, Japanese people were avid savers; the saving rate of Japan between 1964 and 1968 was 36.2%, while the number in the US was only 15.7% of the total GNP. This has helped Japan greatly with building up its economy. On average, Japanese people used to save more money than people in other countries because of a few different reasons. First of all, the percentage of young people in Japan, who tend to earn more money than they spend, was high.

Another important reason is that Japanese people of the babyboomer generation tend to value stability in life very highly, they are no risk-takers. Having savings in preparation for unexpected events is considered a must for a ‘good adult’. Also, people don’t like to rely on the social security system in Japan because it is not easy to get benefits to start with, and it is considered a social taboo to receive these benefits.

This high saving rate of households enabled Japan to have enough money in the bank to lend to companies who needed financing to grow their businesses, who were borrowing happily for many years.

Now, the situation has changed. The saving rate has dropped to less than 5% in the last ten years, which is likely related to the low economic growth of the last 30 years, and the growing tendency of companies to hire people only temporarily as opposed to permanently. The pandemic, however, has reversed this trend again, as people once more feel the importance of having savings when difficult times hit them.

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