Season 16, Episode 7: Making a Miracle (Economics 1955-1972)

The early 1950s had been a time of belt-tightening austerity across Japan as the nation adhered to the “Dodge Line” set in place by American economist Joseph Dodge. The state had always been a significant source of employment and the public certainly felt the effects of fewer jobs and less relief for those in need. Technically speaking, however, the Dodge Line worked as intended. Inflation fell, private industry grew, and demand for Japanese exports began to outstrip available supply, which led to more jobs, higher wages, and a more stable economy overall. By the mid 50s, that economy would cease contracting and begin a cycle of growth that most Japanese citizens, beforehand, believed impossible.

The economic growth of Japan from 1955 to 1972 was indeed significant and remains impressive but the term “Miracle” is certainly overstating things. It’s important to keep in mind the power of public perception and, more crucially, expectations. The economy had cratered during the later years of the Pacific War and the postwar period saw runaway inflation and food shortages, both of which worked like a tag team to temper the expectations of the Japanese public. The decades of hardship which preceded the big mid-decade turnaround had made many Japanese citizens very cynical and pessimistic, which in retrospect made the turnaround seem like the act of some benevolent deity rather than the result of sensible policies, fortunate timing, and a stable foundation.

Much of the economic success of the mid-50s to early 70s can be credited to precursors which were established in the first decade after the Pacific War. Although much of its government apparatus remained in place, the reforms which were encouraged by SCAP and the Council for East Asia transformed some of the areas in which Japan had previously fallen stagnant. The education reforms ensured that most graduates enjoyed impressive literacy rates, a high level of personal discipline, and a wide breadth of knowledge that helped them adapt to the changing job market and excel in their postgraduate careers. Well-educated employees would prove a huge benefit to the companies who spent much of the 60s investing in emerging technology.

Another factor in Japan’s economic expansion was the lingering influence of Yoshida Shigeru, who joined the LDP in 1957 and participated in its intra-party politics. His policies while Prime Minister proved very beneficial to the Japanese economy and, in spite of the early efforts of some LDP factions to subvert or remove Article 9 of the constitution, Japan remained relatively de-militarized, save for their Self-Defense Forces which were only around 150,000 persons strong, including reservists. After the push for broader re-militarization by Kishi Nobusuke failed, Japan’s government could focus their spending on expanding, preserving, or developing their emerging economy.

While much of the Japanese domestic economy had previously centered on so-called “light industry” - which means the manufacture of simple consumer goods, the need for postwar reconstruction had resulted in the growth of “heavy industry” - which means the manufacture of heavier material, usually steel or other alloy, which is often utilized for infrastructure and construction. During the Pacific War, such industry was typically overseen solely by the military for the production of military-related machinery like ships, planes, tanks, and artillery. The export benefits of Japan’s fixed exchange rate meant that many foreign importers began ordering the heavy industry goods for resale in their home countries.

On the advice of the Ministry of International Trade and Industry, or MITI, Japan’s government generally favored protectionist import policies like tariffs which ensured that domestic consumption of domestic goods remained high, while likewise offering incentives to companies which pursued emerging technologies, which MITI believed would be very profitable in the future.

In keeping with the priorities of Yoshida Shigeru, Japan sought every opportunity to join relevant international trade organizations and economic alliances. In 1964, Japan joined the Organization for Economic Co-operation and Development, or OECD. Originally created as the Organization for European Economic Co-operation in 1948 as part of the Marshall Plan, in 1961 the OEEC was reorganized as the OECD and included most of the nations of western Europe along with the US and Canada. Japan’s new membership in 1964 was meant, like their hosting of the Olympic Games, to signify that Japan was ready to return to the international community as a peer nation.

However, it is a mistake to assume that Japan’s now rapidly-expanding but stable economy was the result of greater international integration. Some economists and economics-focused historians have pointed out that Japan’s economy during the 50s, 60s, and 70s was arguably the most centrally-planned economy of any non-communist nation during the same period. While the Imperial Era was over, the close relationships between bankers, business titans, and government officials were clearly still in place. You can draw your own conclusions regarding whether this was good, bad, or somewhere in between, but the idea that Japan’s economic miracle was the result of free market capitalism is pure myth.

So what purpose did these international trade organization memberships serve? For the moment, they were mostly a way for Japan to get more access to export markets to buy their products and increase the profits of the producers. While they would often also be made to eliminate or greatly reduce their own import tariffs, the companies doing the importing were encouraged by MITI and other government organizations to keep their imports minimal and continue focusing on producing domestic goods and exports.

Transportation was another issue in which the decisions of the previous era would create a sizable ripple during the Economic Miracle Era. The first Japanese automobile manufacturers had emerged during the Imperial Era, many of them also manufacturing tanks, planes, and weaponry for the military. Now that the military was no longer a significant customer, established companies like Toyota and Mitsubishi created automobiles for the Japanese consumer class, alongside newer companies like Honda. By the mid-1950s, as Japan’s economy stabilized and forecasters predicted that many would soon be able to afford the personal vehicles they coveted, some went so far as to predict that railways would soon be a thing of the past for Japan. As anyone who has ever spent any time in Japan can tell you, those forecasters were grossly incorrect.

The Imperial government had been very interested in cutting edge high-speed trains during the ongoing occupation of northeast China but had little materiel to expend on rail lines and train cars as the Pacific War commenced in earnest. In 1957, however, the Odakyu Electric Railway, a private rail operator, set a speed record of 145 kilometers per hour, which is about 90 miles per hour, using their new 3000 Series SE Romancecar train. Thus, the Shinkansen was born.

Although we refer to Shinkansen in English using the term “Bullet Train,” the Japanese name actually means “New Main Line Train.” The term “Bullet Train” comes from “Dangan Ressha,” an old nickname for prototype express trains that dated from 1939. In spite of the impressive speed of this new train, convincing the government to invest significant resources in expanding Japan’s railway was no small task. The credit for convincing said government usually goes to Japan National Railway President Sogo Shinji, a longtime railway bureaucrat whose history included a checkered period in Manchukuo as a close friend and ally of war criminal Ishiwara Kanji.

Using intense lobbying efforts, securing foreign loans from the World Bank, and some creative bookkeeping that concealed the true high cost of constructing the new railway, Sogo Shinji managed to oversee the completion of the Tokaido Shinkansen, which provided bullet train service from Tokyo to Osaka along the historic Tokaido route in 1964, just in time for the Olympics. Unfortunately for Sogo, his creative bookkeeping was uncovered the year before and he was forced to resign amid the uproar of financial scandal. To be clear, he was not lining his pockets with taxpayer dollars, but was diverting funds intended for other railway projects to fill the gaps in the budget required to complete the Shinkansen railway. He was aided in this pursuit, to a degree at least, by Sato Eisaku, who was a finance minister at the time but would soon become the Prime Minister.

The materials required for the Shinkansen project helped provide continued internal stimulation for Japan’s heavy industry, which forged the steel necessary for the tracks, as well as much of Japan’s light industry, which built many of the train components. Today, of course, Shinkansen trains run across three of Japan’s four major islands. Sorry, Shikoku; no bullet trains for you. Still, it is now possible to board a Shinkansen in southern Kyushu and, amid a few station transfers, take bullet trains all the way to Hokkaido. From personal experience I can attest that they are a great way to get around Japan.

While the Shinkansen are one of the most famous of Japanese methods of mass transit, the government also invested heavily in light rail, automobile expressways, and subway systems for urban centers. While Tokyo and Osaka both sport impressive subway networks, even smaller cities in Japan were usually granted either a subway, bus network, or above-road transit of some kind. Mid-size cities like Nagoya often sport several varieties of transit which usually share stations, giving residents convenient travel options without needing to purchase an automobile. Of course, this all takes time and is still an ongoing process in Japan which sometimes makes for political controversy as car-driving citizens advocate for new or repaired roadways but, given the premium nature of land in Japan, mass transit options are usually given higher priority.

The investment of the government in improving Japan’s heavy industries, which processed the raw materials required for all this construction, soon paid off as the improvements to infrastructure assisted economic growth. However, that growth came at a tremendous cost and with no small amount of risk. Keiretsu conglomerates seeking fresh capital for expansion applied for loans at banks around the nation. These banks granted these loans and in turn requested loans from the central Bank of Japan, a process which eventually gave Japan’s national bank practical control over nearly every independent bank. Keiretsu borrowed vast sums, often requesting far more than even their massive companies were worth. This practice is called “over-loaning” and it works fine as long as the money to repay the loans continues to flow into the creditor’s coffers. The Keiretsu often used this money to invest in production and to expand their ever-growing product line of exports. As long as exports remained in high demand, this would all work out fine. However, any disruption to the exports threatened to bring about all sorts of nasty fiscal consequences.

Prime Minister Ikeda Hayato is usually given the lion’s share of credit for the economic miracle, though even he met with some difficulty in convincing the public to adopt some of his ideas. Happy that his “Income Doubling Plan” seemed to be working so well, he tried to push Japan toward embracing free trade and global capital. However, conservatives to his right -- and many Japanese conservatives were to the right of Ikeda -- balked at the idea of abandoning their trade protectionist policies. After all, they reasoned, hadn’t these policies helped Japan to recover from the devastation of wartime and build a modern, competitive nation? Some in print media even claimed that ending Japan’s trade protectionism would be tantamount to a second coming of the black ships of Commodore Perry, though they were arguably overstating their case.

In the end, Ikeda Hayato managed to achieve quite a high level of free trade adoption in Japan, though prejudice against foreign-made goods ensured that foreign corporations still encountered significant difficulties when trying to sell their products to Japanese consumers. Free trade or no, economic and social conditions still favored exports rather than imports for Japan.

While Shinkansen and a variety of other mass transit enjoyed eager adoption by Japanese consumers, the automotive industry was determined to make its mark on the Japanese market. In the initial postwar decade most Japanese consumers had far more immediate concerns than purchasing a personal vehicle. As salaries and average incomes rose, however, Japanese carmakers vied to create the ideal vehicle for consumers across the country.

Until the late 60s, most Japanese vehicles were utility-focused like trucks though the early 60s witnessed several companies attempt to capture the family market with compact sedans. Most of the rest of the Japanese economy enjoyed surging profits from exports, but there was not yet any demand for Japanese-manufactured cars overseas. Thus, the domestic market became their focus and in the mid-60s companies began making “kei-jidosha,” or “light vehicles” with small engines and compact designs, as well as a wide selection of motorized scooters and motorcycles. Vehicle tax in Japan was determined by the dimensions of the vehicles as well as engine size, which made these small vehicles good options for lower-income customers.

The late 60s, however, saw a vast increase in demand for family-appropriate vehicles. The Kei vans, trucks, and cars were fine for short trips with little to no cargo but as salaries rose and new motorways were built across the nation, more and more families sought vehicles capable of taking the kids on the occasional road trip. Near the end of the 60s, export demand for Japanese vehicles began to surge, from a little over 3 percent of total production in the late 50s to a whopping 17 percent as the 70s began. This increased demand was due, in part, to the integration of cutting-edge electronics into Japanese vehicles.

Some of this was due to the nature of the keiretsu conglomerates who owned both automotive manufacturers and emerging tech companies. Such organizations encouraged synergy between their various properties to increase value and maximize profits. However, some credit is also due to the Ministry of International Trade and Industry, or MITI, who gave companies generous loans to research emerging technologies like integrated circuits, microcontrollers, and microprocessors, as well as the rudimentary programming needed to make them all work. The fruits of those investments were enjoyed by automobile manufacturers throughout the closing years of the 60s and well into the 70s and beyond.

However, not every worker was buoyed by Japan’s rapidly-climbing GDP and average income. Around the same time that massive protests against the new US Security Treaty were still in their planning phase, another kind of trouble was brewing in Fukuoka Prefecture on northern Kyushu. The Miike Coal Mine was owned by the Mitsui Keiretsu, who was trying to adapt their business to the ever-changing economic climate. While coal had been essential for producing steel and providing fuel for trains, ships, and other steam-engine vehicles, the companies who profited from mining the coal were facing a sharp drop in demand as petroleum-based fuels emerged as new cheaper energy sources. Thus Mitsui announced in 1959 that, in the interests of responding to the market’s demands, they would lay off thousands of workers at their coal mines nationwide, with the Miike mine in particular slated to lose nearly 1,500 employees.

The workers at the Miike mine were, obviously, pretty upset by this revelation and they decided to stage a large-scale work stoppage to both protest the current layoff plan and, hopefully, avert future mass firings. However, the event which would later be named the Miike Struggle should be understood not as the result of a single strike action, but came about in part because of the history between Miike coal miners and their corporate management.

Back in 1953 the Sohyo-sponsored union of Miike coal miners engaged in a major strike that resulted in concessions from management, a victory for the workers. In January of 1960, however, amid the work stoppages and protests, Mitsui’s local managers decided to play hardball. They locked workers out of the mine, effectively enacting their own work stoppage from above. As the miners and their families continued demonstrating in front of the now-locked facility, the mine managers attempted to convince disaffected workers to start their own union, one that was independent of Sohyo and the existing Miike union.

Throughout 1960, against the backdrop of the Anpo Protests and the final days of Kishi Nobusuke’s Premiership, the coal miners of Miike engaged in a long-term standoff with their employers. The ensuing Miike struggle became a titanic conflict which pitted the union miners and Sohyo on one side with mine management and Japan’s business interests on the other. Funding for the miners to subsist while the strike continued flowed in from Sohyo and other fundraising efforts while Mitsui received generous holdout funding from other large businesses across the archipelago, including those that had nothing at all to do with coal. The Miike struggle was, in many ways, a proxy war that pit organized labor against big business.

Miners demonstrated before the locked facility daily and mine management used some of the strike funds they had received to hire the services of local yakuza thugs to assault demonstrators in hopes of demoralizing the miners and their families. The miners’ wives responded by demonstrating alongside their husbands, often occupying the frontmost positions of a protest march, betting that the yakuza would be reluctant to openly assault women. This bet was often correct, especially when journalists were present to capture the proceedings.

In mid-March, mine supervisors managed to convince a contingent of miners that their own union management had picked the wrong fight and that they would be better off forming their own union. The formation of this “second union” gave this already-complex conflict yet another dimension as the miners were now divided amongst themselves. In late March, a member of the “first union” was stabbed to death by a yakuza thug.

By mid-April, leaders of the second union reached an agreement with the mine’s managers and announced that they would soon return to work. Although the mine management happily prepared to reopen the mining facility, the first union instead staged a picket blockade of the mine, preventing second union members from going back to work and accusing the second union of being scabs.

In June, around the same time that the new US Security Treaty was being ratified after Kishi Nobusuke’s questionable parliamentary tactics, mine supervisors decided to try a new method of bringing second union members to work. Because the Miike mine is located in a coastal community, management opted to try and bring miners into the facility using a ferry boat, effectively going around the picket blockade still being manned by the first union. However, the first union was informed of this plan and chartered a boat of their own. They proceeded to follow and harass the second union vessel, bombarding it with water cannons on occasion and even ramming the enemy ship. This new naval component to the strike became known as “The Battle of Ariake Bay.”

When the Security Treaty automatically ratified in late June, there was a sudden swell in the availability of far-right counterprotesters as the Anpo Protests were now stalled. Large numbers of these far-right thugs traveled to Fukuoka Prefecture to take up arms against the first union at the Miike Mine, which resulted in a huge spike in violence and injuries at these demonstrations. Kishi Nobusuke ordered 10,000 riot police, who had likewise been freed up by the end of the Anpo Protests, to travel to Miike and keep order, though in reality they more often sided with the far right counterprotesters and assisted in inflicting violence against labor organizers.

When Kishi resigned as Prime Minister in mid-July, he took responsibility for the situation in Miike and it was left to his successor Ikeda Hayato to bring peace to the situation. The miners became increasingly hopeful for a favorable settlement when the incoming Premier appointed Ishida Hirohide as Labor Minister. Ishida had served in cabinet positions for both previous prime ministers and was seen as a friend of the Labor movement. He quickly convinced both the first union and the mine management to submit to arbitration from the Central Labor Relations Commission, or CLRC, and both sides presented their cases. Hopes were high among the first union that victory was at hand. However, the CLRC’s subsequent ruling on August 10 was almost entirely favorable to the Mitsui conglomerate. The only concession given to the striking miners was that the layoffs were ordered rescinded, but with the caveat that those miners should voluntarily retire.

The leaders of the first union were outraged by this result and resumed their strike but throughout the fall of 1960 support for their strike dwindled as did donations to their strike fund. The real death-blow came when Sohyo, some weeks after the CLRC ruling, announced that they were withdrawing their support for the strike, leaving the first union almost completely isolated. They ultimately gave up on the strike and returned to work on December 1, 1960, after having endured a 312-day lockout.

The Miike Struggle was, and remains, the largest labor action in Japanese history. It is often seen as the apex of labor power in Japan and certainly marked a turning point in Japanese labor actions going forward. The age of the militant workers taking up arms against exploitative management was over; going forward, even formerly hardline organizations like Sohyo would seek more cooperative avenues for negotiation and go to great lengths to avoid open conflict.

As for the miners at Miike, things continued to decline throughout the early 60s as Mitsui management recognized only the cooperative second union and refused to negotiate with anyone else going forward. Throughout the early 60s, mine management continued to fire and lay off employees with little to no pushback from the miners’ union while at the same time increasing their demand for productivity. Although there had been around 15,000 miners who were ordered to produce 8,000 tons per day in 1960, by 1963 there remained only 10,000 who were expected to produce 15,000 tons per day. On November 9, 1963, a combination of fewer workers and poor safety training resulted in a horrific incident. 500 feet under the earth, coal dust ignited and caused an explosion, which collapsed tunnels and filled the mine with poisonous carbon monoxide.

The incident killed 458 miners and injured over five hundred more. Such explosions were exceedingly rare by the 1960s thanks to time-worn safety measures like keeping the coal deposits wet to discourage the spreading of dangerous, ignitable coal dust. There had been no coal dust explosions in Japan for at least fifty years before this incident, thanks to rigorously-enforced safety protocols. Of the 458 who died in the incident, only twenty were actually killed by the explosion or collapsing tunnels. The other 438 were killed by the carbon monoxide, which was spread through the mine via the ventilation system fans, which should have been shut down. Some workers arrived successfully at their lifts shortly after the explosion only to be told to wait by supervisors on the surface. By the time the lifts were brought up, the men inside had been killed by carbon monoxide. The grisly incident was, and remains, the worst mine disaster in Japan’s postwar era.

While such disasters were not commonplace during the Economic Miracle period, they were also not entirely unusual. The increased adoption of heavy industry brings with it considerable risks to workers’ health, safety, and sometimes, to their lives. While much ink has been spilled regarding the success of the economic miracle in terms of GDP, average income, and low inflation, it bears remembering that this progress came with a cost to those who labored under risky conditions, often for long hours while earning lower-than-average pay. However, white collar workers also occasionally found themselves in lethal danger because of their jobs.

The word “Karoshi” in Japanese means “Death from Overwork” and the phenomenon traces its origins to the Economic Miracle Period. The first documented victim of Karoshi was a 29-year-old shipping clerk who worked for a major Japanese newspaper who suffered a fatal stroke. Working beyond the standard 40-hours a week was seen as a sign of commitment for salaried employees and was seen by the workers themselves as a source of job security in the event of future layoffs. However, as doctors studied the remains of Karoshi victims, it became known that working 60 to 80 hours per week had terrible consequences for peoples’ long-term health, contributing to cardiovascular disease, heart disease, and mental distress.

With all of that in mind, let’s return to Prime Minister Ikeda Hayato’s election-winning “Income Doubling Plan” to see if, amid all the overwork, trade expansion, and destructive management practices, his big idea paid off. The original pitch was that implementing his particular suite of economic and social safety net policies would result in an average economic growth of 7.2 percent per year for the following ten years. The actual results were that Japan’s economy grew by at least 10% per year during that period. The doubling which the plan referred to was achieved not in ten years, but in seven, meaning specifically that the Gross Domestic Product of Japan had doubled in seven years since the implementation of the plan.

The success of Ikeda’s plan continues to be a marvel of economic wizardry. Nations with developing economies often look to the Income Doubling Plan for inspiration regarding how they can achieve rapid, sustainable expansion for their own nations. The success of the plan and the relative rise in standard of living that resulted therefrom led the Japanese people, broadly, to adopt economic growth as the primary measure of any future government’s success. What this typically means is that the Japanese electorate-- again, broadly -- usually looks to the current GDP change to determine where their vote will go. If that number rose, the current majority party was likely safe. The stranglehold that the LDP held over the electorate ensured that it was unlikely they would be kicked out of power soon, but GDP shocks often led to a pre-emptive power shift within the party apparatus, who would frequently remove current presidents-slash-prime-ministers and replace them with a rival faction head in order to secure the confidence of Japanese voters ahead of elections. However, in spite of what some economists seem to believe, I have yet to see any evidence that such growth is permanently sustainable. And external factors beyond the control of anyone in Japan would soon work to bring that growth to… well, not exactly a screeching halt but certainly giving it a shock.

In the US, the trouble began in the late 1960s. Then-president Richard Nixon was facing a series of economic difficulties: inflation was rising while foreign powers like France were ditching the dollar as a reserve currency and exchanging their dollars for gold, causing an outflow of the precious metal from the US reserves. As the US controlled more than half of the gold reserves in the entire world at a time, markets were responding to this shift, sometimes in ways that made no sense and were often unpredictable.

Attempting to address these difficulties, in 1971 Nixon suspended the ability of anyone to exchange dollars for gold from US reserves, imposed a 90-day freeze on wages and prices, and also implemented a ten percent surcharge on imports. The results, in the US, was a massive political victory, which carried Nixon to reelection for a second term in 1973. The wage and price freeze cooled inflation, halting the outflow of gold stabilized the dollar for the moment, and the import surcharge was seen as punishment for importers who were gouging American consumers with high prices and outsized profits, though in fact most of those rising prices had been due to inflation. While the political victory was relatively sound, the long-term economic consequences would be severe, but we’ll discuss those several episodes from now.

In Japan, the so-called “Nixon shocks” of 1971 caused considerable economic chaos. Now that it had been detached from its gold valuation, the value of the dollar and other forms of legal tender were subject to the whims of currency traders. The Bank of Japan took action quickly attempting to prevent the value of the Yen from rising too much, as so much of the Japanese economy was export-based and utterly reliant on a weak yen to attract import merchants. However, this was like trying to control the tide by sweeping the water back into the ocean with a broom; Japan’s export market became more competitive, which led to increased demands from employers regarding productivity to help keep their competitive edge around the globe.

The Nixon Shocks, as well as the US recognition of the People’s Republic of China led to sitting Prime Minister Sato Eisaku resigning in 1972. In spite of the fact that the man’s administration seems to have brought an ignominious end to his own political career, Sato Eisaku remained close friends with Richard Nixon for the rest of his life and even attended Nixon’s second term inauguration the year after his own exit from Japanese politics’ center stage.

The Economic Miracle of Japan remains a fascinating case study in the limits of rapid economic growth as well as the relationship between productivity and social safety nets. In 1972, global economic conditions were already changing sufficiently to make future economic growth a challenge. Everything would change, however, in 1973, when even more global economic shock would rattle the bones of even stable economies like Japan and the US.

Next time, we will discuss the social developments during the period of Japan’s Economic Miracle.