Tom Kemp, Industrialization in the non-Western World

The impressive, indeed meteoric, rise of the Japanese economy, since the Second World War, which has raised it to the position of the world's third largest industrial producer, has been one of the most significant and unexpected changes of recent history. Its ability, despite the destruction wrought by the Second World War, to overtake and Outstrip the leading industrial countries, to build up powerful and technologically advanced industries almost from scratch, and to establish a leading position in the world market, has attracted wonder, admiration and foreboding. At a time when older industrial countries were in a state of stagnation or decline, Japan continued to press forward vigorously in spite of enormous expenditure on imported oil. The rapid expansion of the motor car industry, for example, was not checked by the post- 1974 energy crisis, and Japan established itself as the world's leading producer. World recession slowed Japan's advance, however, hitting hard some industries which had over-expanded (luring the boom. The economy also suffered high-level inflation. Nevertheless, Japanese business has taken such setbacks its a challenge, pushing all the harder to reduce costs of production, to develop new products and expand overseas markets. The appearance of continuous success and the ability to overcome problems with resolve conceals many weaknesses. There are internal contradictions, untoward side-effects of rapid expansion and increased vulnerability to external shocks which have to be examined before the picture can be complete. Nevertheless, the first task must be to discuss the reasons for Japan's success and to explore the peculiarities of the Japanese model of industrialization.

THE MEIJI PERIOD

The elite of the new regime which took power with the Meiji Restoration of 1868, while not wishing to break with the traditional way of life, deliberately set out to endow their still feudal agrarian country with the institutions and economic organization of a modern state. The closing of the gap with the advanced countries was seen as a question of national survival. If Japan did not learn from and emulate the foreigners who were battering at its door they might take over control and turn the country into a colony. What this would mean was clear enough from the experience of other Asian countries. The previous regime of the Tokugawas had met the threat of Western encroachment with the policy of seclusion: they simply reduced contact with the outside world to a minimum. Because of their geographical remoteness from the expanding frontiers of European domination, this policy worked well enough for a time. Japan developed in its own way but, at the same time, fell further behind the technologically advancing European countries and the United States. By the mid-nineteenth century the latter were intent on bringing the whole of Asia into their trading network and they rudely brought to an end Japan's self-imposed isolation. The Tokugawa regime had been obliged to accept unequal treaties which gave foreign nationals a privileged status in Japan. The succeeding regime, whilst being unable to repudiate these treaties, learned a lesson and made a cardinal principle of its policy opposition to foreign penetration, by adopting the foreigner's own methods and instruments. The early decades of the Meiji period saw rapid modernization as Japan consciously incorporated into the traditional framework, much of which was preserved, the attributes of a modern society. A new administrative and legal apparatus was adopted to sanctify the position of the ruling class and give it more effective instruments of power. The armed forces were completely reorganized and reconstructed on modern lines, while retaining and even enhancing the prestigious role they held in society. A basic infrastructure of transport, communications and other facilities began to take shape; a development policy which ensured that the modern features were Integrated with the society rather than remaining as enclaves. The state strenuously promoted industrial development and encouraged the importation of advanced technologies from the West, both in the shape of machinery and foreign technicians. A strong economy was seen as a necessity for national survival. The agrarian surplus extracted from the peasantry had previously gone, in the main, into the consumption, of the old ruling class. It was now chanelled into productive outlets. Market forces were encouraged and a stimulus offered for investment by the merchant cliques and the samurai, once they had been compensated for their loss of stipends. Thus, unlike any other Asian country, Japan entered the twentieth century under the guidance of a modernizing elite committed to building a strong national economy both to preserve the independence of the state avid also to extend its power and influence on the Asiatic mainland and the Pacific area. Nevertheless, Japanese industrialization was clearly not a home-grown product. Although economic progress had been visible under the Tokugawa regime along capitalist lines, it can hardly be claimed that Japan would have embarked upon industrialization without borrowing the technology and organization of the West. What was significant was that the existing social and cultural framework proved particularly receptive to change and innovation. Even so, much of the impetus had to come from above, from a powerful reforming elite drawn from the old ruling class, highly nationalist in inspiration, which saw a modern economy as the basis for a strong state and also a firm basis for their own rule. There was little in existing models in the last quarter of the nineteenth century which suggested that this sort of industrialization could be carried out through state planning. The market mechanism and the theories of economic liberalism found ready acceptance; they were among the factors which accounted for the economic strength of the Western countries. The role of the state was not to run the economy but to blaze the trail for ill-equipped or reluctant, entrepreneurs, mostly from the old merchant class. In the early stages the state set up and financed industries but disposed of them, on very favourable terms for the new owners, as soon as it could. Only those industries directly related to armaments production remained under state control. Overall, the public sector in Japan has never been large. Instead, a close working relationship grew up between the bureaucrats of the administration and the representatives of the zaibatsu, the giant family concerns, which came to dominate lie modern sectors of the economy. The Meiji reformers thus opened the way for capitalist relations of production and found a place in the new order for the privileged strata of the old order a landowners and samurai -- together with the merchants. Agrarian change was carefully regulated from above, in the face of peasant discontent in a way calculated to assist economic development rather than to improve the conditions of the rural population.

The form of guided industrialization which began after the Meiji reforms had -specific features -which cannot be explained from market forces alone or from Japan's comparative advantage in the world economy at that time. Given the predominantly rural character of Japan it was inevitable that the textile industries should play a leading role in the new industrialization. Silk was already an established industry and raw silk proved to be an important export staple. With abundant labour, a potential home market and possibilities for export, it was reasonable to encourage the setting up of a cotton industry. A complete range of technology was available from the West, including steam power. Modern factories could be established at an early stage of the industrialization process, but there was also traditional small-scale production. For the govern ment, with its nationalist aims, it was also of primary importance to encourage heavy industry as a necessary basis for political as well as economic independence. Japan could enjoy the advantages of the late-comer in taking over the technology and organization already proved in the advanced countries. Besides retaining some control over strategic industries, the state was also instrumental in the setting up of modern infrastructure, especially transport facilities; thus the railway, the telegraph and the steamship were already available. The relatively high level of education and literacy, the maturity of the pre-industrial economy, the absence of any strong prejudices against change in the sphere of production -- indeed, a bias in the other direction on the part of the military as well as the bureaucracy -- made Japan remarkably receptive to Western models in every sphere. Not that these models were adopted mechanically; they were assimilated, developed and brought into conformity with national conditions.

One example of this was the often-noted persistence of industrial dualism: the combination of the old forms of small-scale, A, decentralized production, highly labour-intensive, with the new -- large-scale and more capital-intensive industries using, at first, imported technology. The former employed the old craft skills, worked on traditional materials and turned out products used in frugal Japanese households. The latter produced not only cheap textiles and other new products, for which a market might be found abroad as well as at home, but also the minerals, capital goods and armaments which were the bases of economic and political power. It was this modern sector, dependent upon imported technology, more capital -intensive and organized in larger units, which was to provide the thrust for continued industrialization. While part of the increased output could be absorbed in the home market, where there were new demands and government requirements, especially concerning the armed forces, markets abroad were to become of growing importance as expansion continued. The economic need for raw materials together with the need for new markets fitted in with the nationalist drive to expand overseas, in order to prevent Japan being hemmed in by hostile countries.

By the time of the First World War it could be said that the basis for a modern industry had been laid in Japan and that there was a built-in momentum towards further expansion, both economic and political. Japan assumed an imperialist posture in Asia, having proved its military strength in the wars against China and Russia. While being unique among Asian countries, and having gained a position of equality with those of the West, symbolized by the treaty with Britain of 1902, Japan was still a long way behind the leading industrial powers in aggregate output and in income per head. The mass of the population were still peasants and, although agricultural production had been growing steadily, once taxes, rents and other payments had been met, its purchasing power was low. At the same time, there wits a low-wage labour surplus in the rural areas which could be tapped by industry. Despite rapid rates of growth in industrial production, in total output of steel, coal and consumer goods, Japan was still outclassed by the advanced countries. If Japan's military victories had impressed outsiders, they had been the result of the disproportionate claim made upon resources by armaments production and of the pursuit of political power as a priority. The living standards of the masses were still desperately ,low, though probably well above those of other Asian countries, and Japan's main asset seemed to be its abundant reserves of cheap labour power. State policy was concerned with measures to assist capital accumulation and the benefits went disproportionately to the rich and powerful. But the Japanese people were frugal and part of any additional income went into savings; the 'demonstration effect' (that is, the 'impact of seeing a larger variety and superior quality of goods than are customarily available at existing income levels, thus stimulating a demand for them) was hardly operative. War expenditure, although in one sense a burden, offered a market to heavy industry and may have helped to lay the foundations for subsequent industrial growth.

The close alliance between state and business which grew up in the Meiji era marked a departure from liberal capitalism and resembled more the mercantilist policies which some European countries had employed in their own pre-industrial stages or the organized capitalism which was taking shape in Germany. An important result was that it enabled Japan to acquire and preserve its economic autonomy as well as its political independence. The home market was not flooded with imported goods and by the early years of the twentieth century -- cheap textile -exports were highly successful in Asian markets, foreshadowing what was to follow. Although there was some recourse to foreign capital, industry was mainly financed through government borrowing- Policy from that time on was -designed -to- ensure that foreign capital could dominate industry. The nationalist goals of the rulers, with which business leaders concurred, ensured that the country not only maintained its political sovereignty, ridding itself of the unequal treaties by 1899, but also prevented it from failing victim to economic imperialism. To be sure, the economy became increasingly integrated into the world market, but this was on terms which, as far as possible, were determined by national interests as perceived by the state-business alliance.

The decades of Meiji (1868-1912) were undoubtedly of great formative importance for the economy of modern Japan. By the end of the period it was well launched on the road to industrialization, and it had already taken a form which was distinctively Japanese. While preserving many of the original social and cultural traits which had characterized traditional Japan, a modern sector had been built up under the aegis of a particular form of organized capitalism in which nationalism and militarism played a central role. Much of the old industrial structure had survived or even been extended. At the same time, there was large-scale production and giant firms and banks played a dominant role in modern sector.

Traditional features, such as close-knit family ties, the dependence of women on fathers and husbands, the habit of obedience to social superiors and of disciplined cooperative labour, were turned to advantage in the creation of a labour force and the organization of industrial production. However, similar traits are to be found in societies which remained backward. The relatively high level of literacy before the Restoration and the attention paid to expanding educational facilities assisted the dissemination of the new technologies and the process of learning and assimilation which went on. The Japanese proved very willing to go to school with the foreigner, displayed enormous curiosity about foreign models, and employed foreign experts and technicians to help found new industries. All the same, they carefully avoided dependence and maintained their own culture. At an early stage of the borrowing process, improvements were made to borrowed technology and resourceful entrepreneurs were responsible for innovations and improvements which adapted forms of technology to their own national environment. A tradition was thus established which was not that of slavish imitation.

While. Japanese society constituted a hierarchy, it did allow for some mobility through educational achievement and the acquisition of wealth. Moreover, once adaptability to new influences and a readiness to learn had developed, a habit was established which ensured that new developments abroad would be closely followed and quickly adopted if they promised to suit local needs. Since Japan owed so much to foreign models from the start of her industrialization, this was perhaps a natural response. Nevertheless, the foreigner was kept at arm's length while the maximum was extracted from foreign contacts. It was a direct reversal of the seclusion policy in appearance whilst conserving much of its motivation underneath.

ECOMONIC EFFECTS OF THE FIRST WORLD WAR

The First World War acted as a forcing house for the industrialization of Japan. Although formally a belligerent, her part in the war was a very minor one. Meanwhile, exports from the main belligerent countries were greatly reduced or cut off altogether, especially in the Far East, and Japanese goods were able to fill the gap. It was -in excellent chance for manufacturers whose home market was still relatively small Industrial production and foreign trade increased four-fold during the war. Home production had to be stepped up to take the place of imports into Japan. At the same time, a larger market opened up for the underdeveloped countries of the Pacific area, who were already among Japan's trading partners and with whom she was able to extend her economic ties still further. With booming trade, investment at a high level and profitability good, the war proved to be a prosperous affair for business. For the mass of the people, however, there were new hardships. Prices rose about two and a half times, outstripping the wage rises of factory workers, many of whom were new recruits from the countryside. Price rises hit all consumers including those in the rural areas. There were serious social strains and unrest, culminating in the rice riots of 1918. Meanwhile Japan made territorial acquisitions in the Pacific area at Germany's expense and consolidated her position on the mainland. With the interest of the great powers focused on Europe, Japan's external position improved. At the same time, the favourable balance of payments enabled foreign debts to be cleared, and Japan became a creditor country. In short, the war benefited Japan both directly and indirectly and when it was over she was apparently poised to make further gains.

As it happened, Japan was affected by the economic difficulties of the post-war period and she faced some unexpected problems. The war boom, after all, had been comparatively short-lived. It left behind a great weight of industrial capacity built up during a period of unlimited demand and rising prices. Much of Japan's increased foreign trade had been with primary producing countries now afflicted with falling prices and lower incomes. Overseas demand shrank at the same time as Japan's competitors were coming back into the field. Home market demand failed to rise to take up the slack. In short, Japan's economy suffered particularly severely from the slump in the capitalist world in the early 1920s and the situation was made worse by the devastating Tokyo earthquake of 1923. The main reaction of industry to these adverse changes was to pursue a policy of concentration and rationalization. The tendency for the modern sector to be dominated by a small number of giant firms was thus intensified, consolidating the position of the zaibatsu.

Industrialization was accelerated by war and, despite these setbacks, continued steadily through the inter-war years. The contribution of industry to national income overtook that of agriculture and a more diversified industrial structure took shape. In the modern sector were located the rapidly growing cotton textile and light manufacturing industries, which used machinery and steam or electric power. These industries were to make the major contribution to exports during the period, competing successfully with the British and other exporting countries with low-priced products. Meanwhile, the decline of the export of raw silk, a foreign exchange earner, especially in the depressed 1930s, emphasized Japan's need to expand the export of manufactures. The other major component of the modern sector consisted of heavy industries, notably mining, iron and steel, shipbuilding and engineering. Most of these industries used imported raw materials or energy sources. Although some foreign firms set up branch plants, the main industries were controlled by the zaibatsu and, in the case of some armaments production, by the state. Thus there was little direct foreign capital investment. The zaibatsu and the banks were able to raise capital for expansion and for the setting up of new branches of industry. They also provided a certain measure of integration between the diverse enterprises which made up each zaibatsu, or Japanese-style conglomerate.

When Japan entered upon a hectic course of imperialist expansion in China, after 1931, the war-related industries, which used advanced technology, began to grow rapidly. As in the earlier period, industrial dualism continued; much industrial production was carried on in small- and medium-sized units still organized in the old way and using much hand labour. The gap between enterprises of this sort and the organized large-scale industries tended to widen front the 1920s onwards, especially in productivity and wage levels. However, the two sectors were not altogether separate and distinct. Large firms of ten found it economical to have parts and components manufactured by small sub-contracting firms; this reduced their overheads and gave flexibility when market demand was variable. Some small firms were able to buy up second-hand machinery cast off by the larger ones. Many were, in any case, producers of traditional articles and specialities for the home market and only needed simple machines such as sewing machines or lathes. Some cheap, of ten shoddily made, goods found their way onto the export market, giving Japanese products a bad reputation.

CONDITIONS OF LABOUR

Generally speaking, the continued existence of industrial dualism was an indication of a lack of maturity in Japanese industrialization up to this time. The dualism was also reflected in the peculiarities of the Japanese labour market, some of which were to be held up almost as a model in the light of Japan's later industrial success. As had been the case since the very start of industrialization, many factory workers were women and girls recruited from the villages or from urban working class families. Their pay was low and conditions of work were poor, with adverse effects on their health. In any case, it was assumed that they would only work for five or six years before marriage, and there was thus a constant supply of fresh female workers. Male workers were required in more highly skilled or arduous manual jobs, as well in a supervisory capacity where women were employed. As heavy industry grew and technology became more advanced, employers required a trained and stable labour force of adult males. Traditionally, much factory labour had been recruited by middlemen and worker loyalty was often to these labour bosses rather than to the factory owner. This system of recruitment proved unsatisfactory in the more highly-organized, large-scale industries which had become increasingly important since the earlier years of the century. Employers in these industries required a cadre of trained and skilled workers who would be loyal to the firm rather than to the labour boss or to a trade union, so far as wage bargaining was concerned.

What evolved in the modern advanced industry was a system of seniority which virtually guaranteed lifelong employment to the loyal male worker. He was recruited on leaving school, or at the apprentice stage, with the prospect of regular progression up the wage scale until he reached his maximum capacity; as he grew old he might be moved to less exacting work and then retired on a small pension. While employed, he received certain social and medical benefits and, ideally, became a 'company man'. Similar schemes were used for managerial personnel coming out of the institutions of higher learning. This kind of paternalism, which linked the employee to the enterprise in a corporate relationship lasting a lifetime, was not unknown in Europe and America, but in Japan it assumed a more systematic form and seems to have been preferred by more firms. While it had disadvantages from the employer's point of view -- it might add to his overheads or make it difficult to get rid of dead wood -- it ensured a stable, loyal and subservient labour force, too afraid of losing their accumulated benefits to be attracted to militant trade unionism. In any case, lifelong employment continued to be confined to the basic core of more highly trained and qualified male workers. It did not generally apply to women, who might make up over half of the work force in many enterprises, nor to the less skilled, temporary workers who might also form a considerable part of the labour employed and who would be the first to be laid off in time of slump.

It is possible that Japanese workers entered more readily into such lifetime contracts than their counterparts in other countries because the system fitted in with existing social customs: the relationship between father and sons in a family or between superiors and dependents in the feudal order. All kinds of sociological and psychological explanations have been offered for the peculiarities of Japanese labour relations. It may simply have been that the development of trade unions lagged behind and was impeded by the law. In any case, the more skilled and better-paid Japanese worker often became a 'company man and his proletarian status and class consciousness were overshadowed by the relative job security which he enjoyed, its compared with the majority of those competing for jobs.

ECONOMIC CRISIS

The Japanese economy underwent a series of troubles during the 1920s, which made for instability. Exports fell off in the face of intensive trade competition and protectionism abroad, and, with the yen over-valued, did not exceed their 1919 peak for another ten years. Prices tended to fall, profits were squeezed and there were many bankruptcies Big business responded by further rationalization, by price maintenance and by increased interest lit foreign markets and colonial expansion. lit 1927 there was a financial crisis and many banks collapsed, thus enabling a smaller number of the larger and sounder banks to secure it dominant position. In 1930-31 Japan was lilt by the onset of the world economic depression with a sharp fall in prices and in exports. The overseas market for raw silk -- for long a useful foreign exchange earner -- contracted disastrously. Higher tariff's in the United States and European countries hit the export trade. Surprisingly, Japan was able to overcome these setbacks within a few years, becoming the only capitalist country to experience rapid growth despite the depression. Two main reasons can be given for this. On the one hand, in a period of worldwide falling prices and contracting trade, cheap Japanese exports of textiles and light manufactures successfully penetrated markets previously held by the older industrial countries, notably Britain, which were now high cost producers. On the other hand, especially from 1936 onwards, government orders for war materials stimulated the expansion of the heavy industries. Japanese capital was meanwhile active in promoting development. in the colonial empire, especially in industrializing the newly-acquired territory of Manchuria. This was facilitated by supplies of cheap labour, borrowed technology and a colonial expansionist policy which made it possible to carve out a protected market sphere in East Asia. This led to a demand for plant and equipment which encouraged further investment at home, while the colonies were also able to supply food and the raw materials of which the mother country was seriously short.

Economic crisis and war mobilization thus created abnormal conditions during the 1930s to which the government and big business responded by further measures of protectionism and concentration. Whether or not the zaibatsu and business generally promoted the aggressive expansionist policy of the 1930s and 1940s, or were forced reluctantly to acquiesce in decisions made by the military and imposed upon the government, there is no doubt that they prospered at a time when the rest of the capitalist world was plunged into its worst-ever depression. In addition, a number of new business groupings, the so-called new zaibatsu, were formed to take advantage of opportunities offered by overseas expansion and war demand. Increasingly, industry was dominated by a few, powerful giant firms, which enjoyed a privileged relationship with the government and worked closely with it and the armed forces to increase production for war purposes. From 1937, war mobilization moved into high gear; there wits some contraction of output in light industries such as textiles, while the industrial effort was concentrated on iron and steel, armament production and naval shipbuilding. As Japan was fighting a modern war, where the standards were set by the most advanced economies, increasingly sophisticated material was required: aircraft, tanks, communications equipment, range-finders, bomb-sights and automatic weapons.

WAR AND THE GROWTH OF NATIONALISM

There is an obvious continuity between Japan's wartime experience and what had gone before; there had, after all, always been a close association between economic development and national-military aims. The question was that until the 1930s the latter had been pursued without an open clash of interests with the Western imperialist powers. As an empire was carved out of Chinese territory and her rulers dreamed of dominating the whole Pacific area, the other world powers could not remain unconcerned and a clash was probably inevitable. No doubt the more conservative elements in the ruling class in Tokyo were only reluctantly pushed into what was clearly a gamble by the militant nationalists and military adventurers. That they accepted expansion on the Asiatic mainland, knowing that this would meet with the disapproval of the Western powers, and embarked on the gamble, was not only a function of an internal power struggle; it also reflected the pressures on Japan of the world economic crisis and, indeed, of the pent-up contradictions of its development since the Meiji Restoration.

Industrialization from that time until the surrender in 1945 has to be seen in context of resurgent nationalism, in which the preservation of sovereignty came to be equated with military strength and expansionism. This gave the military, with its base in the countryside and the traditional ruling classes, a central role in the state and In the nation as a whole. At the same time, the industrialization of Japan enabled the military to operate from a new basis of- power. An important part of this process was bound up with government military spending intended to keep Japan strong and this policy was welcomed by the zaibatsu. Patriotism and profits were able to go hand-in-hand while the hold of the military was strengthened. Once the economy was hit by the world crisis of the 1930s, following the difficulties of the previous decade, it was tempting for Influential sections of the ruling class to seek a way out in the pursuit of Japan's manifest destiny in Asia for which the way had long been open. Further imperialist expansion meant the risk of war with the United States and Britain; it was a war which, on sober calculation, Japan could hardly hope to win except by a speedy and successful first strike. Doubtless there were alternative courses, favoured by the more prudent, but opposition and dissent were stifled and suppressed under the authoritarian regime sanctioned by the emperor-system, itself a product of the Meiji Restoration.

Once the conflict had been begun by the attack oil Pearl Harbour in December 1941, it was surprising that Japan did so well both on the battle fronts and in organizing her war effort. This was done by giving priority to the armed forces, both by increasing total output and drastically reducing civilian consumption. The main problem facing the planners, and in a sense this was what the war was all about, was dependence upon imported raw materials and fuel. The sea-lanes were Japan's vulnerable lifelines and once they were cut the economy could not survive. The initial successes, the over-running of much of the Pacific and the short-lived realization of the grandiose Greater East Asian Co-Prosperity Sphere encouraged the illusion that this could be averted.

When American industrial potential was turned to war production, Japan was revealed as a pygmy by comparison. At its peak, her armaments production was no more than one-tenth of that achieved in the United States. Once the military reverses cut off overseas sources of supply, industry was starved of raw materials and production slowed down. No plans had been made for a long war and arrangements for the allocation of scarce materials became increasingly chaotic. The war revealed the incomplete nature of Japan's industrialization. At least half the population was still employed in primary production. This limited the recruitment of labour to war industries and, despite this, calorific intake fell almost to subsistence level for a large part of the population. American bombing, and the final horror of the atomic bombs, further disrupted the economy and aggravated the hardships of the civilian population.

When the Allied occupation began, the economy was in a desperate state. Food and raw materials were running short and a surge of inflation began. There had been some destruction of industrial plant; more serious was the lack of raw materials and energy supplies and the fact that much industrial capacity had been turned towards war production so that a period of reconversion would be necessary before there could be a revival of the economy on a peace-time basis. Japanese business leaders were anxious to save what they could from the wreckage and saw their best course in cooperation with the Occupation authorities. American policy began with the assumption that there would have to be far-reaching reforms, including a major restructuring of the economy, to prevent further Japanese aggression. In the event, however, the defeat and Occupation represented a turning point in Japanese history almost on a par with the Meiji Restoration, clearing the way for the great surge in industrialization which was to elevate Japan into third rank among the economies of the world.

At first occupation policy, determined as it was principally by the United States, conceived of a reduction in Japan's industrial power as a way of preventing further aggression, and some plant was dismantled for reparations purposes. At the same time, measures of democratization were proposed to undermine the power of those held responsible for past warlike policies: the military, big business and the land-owners in particular. Although democratization was aimed precisely at the old ruling class, there was no revolution and no general redistribution of property. In fact, the ruling class, retained its overall position in the economic as well as the social and political fields. Symbolically, the Emperor Hirohito remained head of state, and continuity was preserved. However, the armed forces were abolished and Japan's military capacity was reduced to a small defence force. Some war plants were dismantled, while others built for military purposes were made available for other forms of production. Considerable effort went into the attempt to break up concentrations of economic power, notably the zaibatsu. American policy-makers were deeply divided over this issue and as the international political situation changed during 1946-47, with growing tension between the United States and the Soviet Union and the threat of revolutionary movements in Asia, policy towards big business became more lenient In effect, the attempt to impose a liberal, free-market capitalism through a form of anti-monopoly legislation was abandoned. zaibatsu. dissolution was not seriously pursued and, although some changes did take place in business organization, there wits little change in control. It came to be accepted by the Occupation authorities that United States interests required an economically viable Japan and that this could only be brought about through cooperation with big business in sponsoring an industrial revival.

Since the American policy-makers were firmly opposed to a social revolution which would have unseated the existing ruling class, there was no real alternative but to cooperate with it. The idea of a de-industrialized Japan, put forward in some quarters, was unrealistic its it would have condemned the population to permanent poverty and increased the danger of revolution. In the early years of the Occupation, Japan was economically dependent upon tire United States, particularly for food supplies and raw materials. There seemed little prospect that she would become a serious competitor, even when the Occupation came to an end in 1952. Recovery from the war took some years and it was not until the mid-1950s that Industrial production recovered its pre-1941 level. War damage had wiped out perhaps a quarter of Japan's wealth; almost all the merchant fleet 11 d been lost, and shipping was Japan's vital link with raw material supplies and markets. Repatriated citizens front the colonies and occupied territories, numbering about six million, competed for jobs and housing. The armed forces had been demobilized and there were all the problems of rehabilitation and reconversion. In a situation of general penury, the black market flourished. Instead of being self-sufficient in food, Japan became dependent upon American agricultural surpluses to meet basic needs. There could be no economic recovery, in any case, unless Industry could once again obtain the imported raw materials upon which it depended and until exports had recovered in order to pay for them. Economic recovery meant reinstatement in the world market.

RECOVERY

Yet, although the prospect may have seemed very bleak in the early post-war years, and economically Japan had been driven down to rock-bottom, the very extent of the decline offered prospects for the future. The masses of impoverished unemployed and underemployed people, hoping to restore shattered lives, made up a large potential, mobile labour force. Industrial plant could be renovated and turned over to peace-time production. Contact with the United States brought immense changes and stimulated the desire for material improvement, encouraging the appearance of entrepreneurs. In the top levels of the administration and business, some of the old guard had been swept away in the turmoil. Their place was taken by new men, anxious to see Japan restored to its true place in the world, open to new ideas, and ready to learn from the occupant.

Meanwhile, in 1946, in accordance with Occupation policy, a major land reform was initiated aimed at abolishing the allegedly militaristic landlord class by transferring land ownership to the peasants, almost half of whom rented their land on some kind of tenancy. Absentee ownership was abolished and a ceiling was set upon the amount of land which could be held by a cultivator. As a result of the agrarian reform, about four million peasant households acquired new land and the proportion of cultivated land held under tenancy was reduced to 10 per cent. The big landowner disappeared from the rural scene with only a limited amount of compensation. The results of this land reform were far-reaching. Whilst consolidating a class of peasant proprietors, now able to retain a larger proportion of their product than before, it also loosened the ties of many villagers to the land. There was no longer much land available to rent and the peasant cultivators mainly depended upon family rather than hired labour. The fortunate peasants who now acquired land, or who no longer had to pay rent for it, could increase their purchases of consumer goods, as well as inputs for agriculture such as fertilizers and machinery.

Reform thus tended to have a two-fold action: it expanded the home market for industrial goods of the kind consumed by rural households, and it released labour for employment in the cities as it became available with economic recovery and expansion. The limited size of the home market, with its large low-income, rural component, had always been a factor shaping the development of Japanese capitalism, turning it towards external expansion. At the time of the reform, it is true, there was already a labour surplus rather than the reverse; over the longer period, however, it provided a reservoir of labour for continued industrialization in the 1950s and 1960s and without which industrialization would have been considerably impaired. It has to be remembered that at the end of the war the economy was still only partially industrialized. Approximately 50 per cent of the occupied population was still employed on the land. This was the main labour reserve of the industrialization process, when it began in earnest again in the 1950s. Between 1950 and 1970, the primary sector shed about ten million people, while employment in manufacturing industry rose from six million to almost fourteen million. Employment in electricity, gas, water, transport and communications rose from three million to over seven million. A considerable re-shaping of the contours of Japanese society took place in the course of this massive shift. There was further large-scale urbanization of a country which had hitherto been largely rural. The newcomers to industrial and urban employment had known only frugal living standards before; they were raw recruits with no tradition of organization and therefore excellent material for the industrial upsurge of the period.

Despite the effects of the war and the changes brought about by occupation policy, Japanese capitalism preserved many pre-war features which dated back to the Meiji era. Control of organized, large-scale industry continued to be highly concentrated and the attempt to dissolve the zaibatsu had been abandoned. The same firms and banks and, to a large extent, the same personnel, remained in charge. The reshuffling which did take place brought in younger and more pushing men, inspired by a vision of restoring Japan's position lit the world by peaceful conquest, and who accepted that this had to be done in cooperation with the United States. Close relations between business and the administration had been maintained, and there was no question of establishing a, laissez-faire economy. The question was where the line between the two should be drawn, the assumption being that the state should encourage, rather than hold back, the dynamism of the private sector. It had always been the role of the state to assist industry with the appropriate policy at home and abroad.

As we have seen, Japan entered the post-war period as a follower country, still only partially industrialized. As well as large labour reserves, available for transfer to more productive activities, it also had a large potential home market of some one hundred million people. Many of the techniques long incorporated into the industrial structure in the United States and other countries had hardly been applied as yet. There was, for example, no motor car industry to speak of and little production of modern consumer durables. Borrowing foreign technology had always been characteristic of Japanese development; with a war-shattered economy to be rebuilt, there was now more opportunity for it than ever. The field for potentially profitable investment seemed unlimited.

Meanwhile, the whole capitalist world, from the early 1950s, entered into an unprecedented long-term phase of expansion and prosperity which could only be favourable to a Japan aspiring to become the workshop of Asia and, indeed, the entire world. Economic aid in the form of capital and technology flowed in from the United States. Once expansion began, however, it tended to feed on itself with a very high rate of reinvestment of profits. Initial capital for new projects came from the already sophisticated banking and financial system. There was a high propensity to save, but significantly there was a wide gap between productivity gains and the rewards of labour. A politically conservative regime and the weak bargaining power of the trade unions in the early 1950s contributed to the creation of exceptionally favourable conditions for the accumulation of capital. Japan was poised to astonish the world; perhaps even those whose decisions had helped bring about the new surge of industrialization.

What was remarkable about the new phase which began in the 1950s was that growth took place at a rapid rate and was sustained for so long a period. Although at various times a slow-down or halt appeared likely, especially in the 1970s under the influence of the energy crisis and general world recession, the expansion continued. Expansion survived the Nixon shock of August 1971 and the oil shock of 1973-74, despite Japan's dependence on imported petroleum. When the growth of the other leading countries flagged in the late 1970s, Japan's industrial upsurge continued and further marked successes were scored with export products in the highly competitive world markets. By 1980, when the major American car manufacturers were all making losses, Japan had become the world's largest motor vehicle manufacturer, selling 1.8 million cars in the United States. Japanese products did not sell on cheapness but on quality, finish, reliability and high technology. This was true in the car market and also in such fields as consumer electronics and cameras. Japanese products held the leading position in many fields. The shipbuilding industry had grown to make good war-time losses and established itself as the largest in the world on the construction of super-tankers and bulk-carriers. Like some other sections of heavy industry, however, it did suffer from recession in the 1970s.

By the early 1960s, Japan's rapid resurgence had begun to attract the attention of outside observers who saw it as one of the most astonishing success stories of all time. Now, after a further two decades of sustained growth, in contrast with the slow-down or stagnation of other industrial countries, the seriousness of the Japanese challenge is apparent to all. The sheer weight of Japanese competition -- has caused the collapse of some foreign industries, such as the manufacture of motor cycles in Britain. The same thing seems be happening with motor cars, colour television and audio-visual sets. Japanese branch plants have spread from Asia into the United States and Europe.

At one time Japanese experience might have been seen principally as a useful model f Or the 'developing' countries. Now is it is more a case of whether the older, advanced countries will not have to learn from Japan if they are to grapple successfully with heir own problems. For many Japanese successes have seemed to little short of miraculous and every aspect of Japanese society and culture has been scrutinized in an effort to discover the secret. Journalists describe the atmosphere in Japanese factories where busy and contented workers cooperate eagerly with solicitous managers in a -- joint effort to promote the firm's success. Bureaucrats and businessmen are depicted as working harmoniously together to promote growth industries and wind (town declining ones for he greater glory, and prosperity, of the nation. The sogo shoshas the general trading companies unique to Japan) are shown as inked to the markets of the world, with intricate communications networks which the intelligence services of other countries might envy commanding trade flows with the precision of a military operation. The frugal Japanese are praised for devoting such a high proportion of their income to savings, making it possible -- or industry to maintain a high investment rate in new plant and machinery. Trade unions cooperate with management, and workers in a trade dispute go (1) working with a label in their button-hole rather than walk out. According to some, the secret is to be found in a peculiar psychological make-up derived from past patterns of social living. It is said that the Japanese are happy to work as a group and accept then- role, be it ever so humble. Best-selling books and frequent newspaper articles drive home the same message: Japan is seen as a challenge, but also as a model; perhaps the alternative face of capitalism if- it is to survive into the twenty-first century. An attempt has to be made to distinguish fact from fable in what tends become a stereotype.

REASONS FOR SUCCESS

It is first necessary to demystify the economic history of modern pan. Its rapid, and in terms of material output, highly successful, industrialization, can be explained on strictly economic grounds. pan was able to take advantage of being a late-comer, both in the early preparatory stages of industrialization under Meiji and, once ore, in the period from 1950. Sustained high rates of investment, modern, imported technology, together with abundant supplies labour under conditions where capital was able to appropriate a major proportion of the gains in productivity, ensured continuous growth as long as markets could be found for increasing production. he high rates of investment ensured a market for capital goods d in turn extended the market for consumer goods industries d services of every kind. Assisted by world conditions, such as e Korean War boom and then the general expansion of world demand in precisely the type of commodity Japan's industry was le to supply, the economy was locked into a virtuous circle. Such growth pattern was by no means unique; it was a classic case of hat Marxists call 'expanded reproduction', the interesting question why it went on for so long. It has to be added that growth is an imperative. The consequences of a halt could be very severe and would have cumulative effects throughout the economy, causing serious financial problems to an industrial and commercial structure based upon a pyramid of credit. For that reason, as some observers have pointed out, the Japanese economy resembles a cyclist who must continue pedalling or risk falling off.

When all this has been said, however, there remains the question of the specifically Japanese elements which conditioned e way in which economic forces worked themselves out. The cultural and social environment, if not exactly designed to promote industrialization, posed no obstacles to it of the kind found, for ample, in the Indian caste system. The reforms carried out in the Meiji era had deliberately cleared the ground of left-overs from the past which might have impeded modernization as carried through at that time. Institutions necessary for industrialization were adopted and an infrastructure built to promote economic development. Then, and later, it is true, resources were diverted into expansionism and war: but not without some spin-off which may have assisted industrialization. There were no religious or caste barriers to the pursuit of material success, though this was not so much openly avowed, as seen as the result of working for the national interest. The pursuit of nationalist goals harmonized with the successful operation of a capitalist market economy which strengthened and enriched the business class. The strong state (appealing to traditional elements) and the healthy economy (for the modernizers) were goals which could command a wide consensus of approval. Japan had to overcome Its Inferiority to the foreigner by adopting his technology and doing better; it was a simple but compelling ideology.

The Japanese economy developed highly capitalist forms, but government policy played a vital role from the start of industrialization and continues to do so today. There was no intention of establishing a state-run economy, but rather a mercantilist-style symbiosis of state and private enterprise. In practical terms this meant an alliance, and one which did not always run smoothly. Different and often conflicting interests had to be harmonized through the state. In the 1930s, for instance, the influence of the military and part of the old ruling class geared the economy to expansionist alms. Some sections of business may have 'had doubts, foreseeing the dangers, but they hardly dared to oppose what was a patriotic course. After the war, similar alliances and compromises had to be made; it was generally accepted that the state had a positive role to play in coordinating economic development, laying down national guidelines and assisting business expansion. It did not always play its role very well and, in fact, played it best when it had least to do.

Post-war Japan was not exactly a classic free market economy, but it was highly favourable to business enterprise and capital accumulation. The state, and more generally the political set-up, encouraged this state of affairs. The two economic ministries - the Ministry of Finance and the Ministry of International Trade and Industry - had (and have) a considerable influence upon overall policy. Other ministries - Agriculture, Construction and Transport and Communications - are influential in their own spheres. In addition, there are other government bodies, notably the Economic Planning Agency (from 1955 onwards), which draw up perspective plans for the medium and long term. American specialists on Japan, upon whom we depend a good deal for our knowledge of the working of the system, tend to play down the role of the state for ideological reasons. On the other hand, the popular impression of Japan Inc., functioning efficiently under the harmonious direction of an alliance between bureaucrats and businessmen is equally suspect. Depending on the point of view, Japan can be depicted either as an example of free-market capitalism or as an economy guided by a benevolent and omniscient state.

In fact the exact situation eludes a simple definition. Certainly economic policy has had, and continues to have, a profound effect on the development of Japanese trade and industry, and the role of the Ministry of International Trade and Industry, while it may be exaggerated in some accounts, has been decisive. The Ministry works closely with business, itself highly organized in several associations, as much in an informal way as through legal enactments. The top men in business and administration share a common social and educational background. Together they have-, in a sense, inherited from the generals and admirals of the past a mission to make Japan great and prosperous, though now by peaceful conquest.

Relations between the different ministries, and those between the state and industry, are not always harmonious. Nor are the ministries at all infallible. Planners have not had real power to shape the course of economic development; the major economic decisions have mostly been taken by business. On the other hand, business has looked to government for support where necessary; it assumes its backing and expects that its own activities form part of a concerted economic policy for which the state is responsible. Leading ministers have been solicitous of business interests. Japanese still recall with bitterness General de Gaulle's description of Prime Minister Ikeda as 'a transistor salesman'. The state is expected to protect the home market, to support the export drive, to prevent foreign capital from getting too much of a foothold and to assist industries in difficulty. The total outcome has been a relationship specifically Japanese, elusive and ambiguous, pragmatic rather than doctrinaire. The state sector proper remains smaller than in most other capitalist countries, but the state's influence seems wholly pervasive. It is doubtful whether Japanese industrialization would have proved so successful had it not been for the constant support of the state bureaucracy.

When the early steps were being taken towards recovery and new industrial resurgence in the early 1950s, this support from the state was particularly necessary. The many crucial decisions made at this stage helped to shape the future course of development and, by accident or design, ensured rapid growth. For instance, decisions had be made about which sectors of industry should be encouraged r promoted. Japan's pre-war Industrial pattern and comparative advantage at that time would have suggested a concentration on textiles and light consumer goods industries. However, an analysis of trends in world trade, and observation of the industrial structure of more advanced industrial economics, showed that the market for these industries would be unlikely to expand rapidly. With rising incomes, world demand was changing, with such commodities as consumer durables coming to the fore. Industrial development was so creating a demand f or machinery and Japan had, of course, to new its shipping tonnage almost from scratch. Thus the decision as made to direct investment towards future demand, to adopt a dynamic view of comparative advantage and to promote highly capital-intensive, high-technology, 'heavy' industry (the Japanese classification including not only means of production industries but also the consurner goods' industries based upon advanced technologies). These were, then, the industries whose products were expected to be in future demand. This did not mean that the more traditional, or light, consumer goods industries were neglected; it as rather that they could not be counted upon for future sustained growth, especially export-led growth.

Decisions of this kind, which might not have been made had market forces been allowed to determine the allocation of resources, seem to have been crucial for future success. They assumed state support for new investments and especially for the development of new technologies imported from abroad. The way was also cleared for the entry of a new generation of entrepreneurs in fields such as electronics, cameras, motor cycles and other products which were soon to flood the markets of the world.

From the 1950s, therefore, a new heavy industrial complex began to take shape, changing the very landscape around Japan's great cities. Iron and steel, shipbuilding and heavy engineering, building on a pre-war basis, took a leading role. They could equip other industries in Japan and in a period of world boom there as a constantly growing market overseas. A petrochemical and oil-refining industry came into existence. A whole new range of more labour-intensive industries producing 'new' consumer goods came on the scene and made their products - cameras, optical instruments, transistor radios, TV sets, motor cycles and, more recently, motor vehicles - famous throughout the world.

As in many fields Japanese industry was a relative newcomer, machinery embodied technology often in advance of that of its competitors. Where success in foreign markets enabled profits to increased they were ploughed back into a continuation of the process. While the home market was growing, much of it could supplied by the small- and medium-sized enterprises of a more traditional sort. The new large-scale modern plants needed foreign markets for continuous growth and new investment.

It was fortunate for some industries, and for the economy as hole, that the Korean War and an intensification of the Cold War took place at about this time (the early 1950s) when the new industrial drive was beginning. American military spending and stock-piling meant orders for machinery, steel, chemical products armaments. Japan became a forward military base and arsenal operations in Korea. In April 1952, occupation was formally ended, but Japan was still strategically linked to the United States through the US-Japan Security Treaty. Japan was now permitted, once again, to have its own armed forces.

Already, during the 1950s, some Japanese products had begun to establish a strong position in foreign markets. The subsequent growth of exports and foreign trade was, because Japan's growth depended absolutely upon the ability to import raw materials and energy supplies, backed up by the general trading companies, or sogo soshas, which have no real parallel in other countries. They established control over more than half the country's import-export trade. Hard selling abroad, bulk-buying, detailed and up-to-date market information supplied by their own communications networks, made them a key factor in Japan's industrial expansion. The sogo sashas resented a new concentration of economic power, parallel to the zaibatsu to which they were related. They acted as bankers, financing trade flows, insurers, warehousers and distributors. Today they have a strong position in relation to suppliers and their knowledge reign markets makes them indispensable for all but the largest firm.

In unravelling the sources of Japan's industrialization it is clear they were multiple and complex. Partly the product of past development and peculiarities in the Japanese social structure, their king out also depended on favourable international conditions and the ability to exploit them. The relationship between government and business, already described, made possible an empirical adaptation to circumstances and created a climate favourable to continued growth. A virtuous spiral thus came into being, tending to perpetuate growth through high profits and high investment levels and generate the forces able to overcome adverse changes as for instance, the Nixon shock of 1971, the oil shock of 1973-74, and the world recession of the later 1970s.

As we have seen, the conditions under which Industry recovered from the war and entered on a new stage of expansion endowed it with a high proportion of modern, technologically advanced plant. This established ;I bias favourable to continued technological change; scientific and technological developments were thus closely followed and bought or borrowed from abroad. The abundant labour supply which had characterised the 1950s and had figured as an important condition for growth largely disappeared as surplus labour was absorbed and fresh supplies from the countryside dwindled. Industry thus tended to move on to a more capitalintensive programme, with a higher level of technology, especially in electronic-related fields and motor vehicles. Indeed, Japanese firms began shunting the more labour-intensive processes off onto branch plants in other countries where labour was still cheap, while concentrating on capital-intensive processes at home. Difficulties arising from the oil crisis, notably a balance of trade deficit, were met by still more aggressive exporting. With the onset of world recession, some of the most successful industries of the 1960s, such as shipbuilding, had to contract. Adaptation continued with industry moving swiftly into more sophisticated branches of electronics, computers, robotization, industrial biology and other science-linked fields. It is difficult not to see here a concerted industrial strategy, absent in most other capitalist countries. Undoubtedly it involves great risks, assuming, in particular, that there will be a growing market at home and, as always, in the outside world as well. The keynote of Japanese response to the recession has therefore been: try harder and keep ahead of the competition. Other countries have responded with caution, contraction and protectionism, thus tending to worsen the situation rather than provide means for overcoming the problems. By keen entrepreneurial behaviour and continued investment in high technology - often financed by bank lending - productivity gains have been made which have kept Japanese products highly competitive, notably in the success of the car export drive in Europe and the United States. So far the gamble has paid off, but still it rests on a precarious basis, particularly on the highly-geared financial structure of many Japanese firms and the dependence for profitability upon continued market growth.

The period since the 1950s has seen further remarkable changes in Japanese society. There has been a massive growth of cities and a decline in the rural population, creating many new problems such as traffic congestion, pressure on public transport, atmospheric and environmental pollution. Incomes and consuming power have risen; Japan has ceased to be a low-wage economy. This has meant higher living standards, but the pressures of urban living have also increased. Basic to economic growth has been a shift of resources from less to more productive uses. Until the end of the 1970s there was still scope for this process to continue, but the possibilities may be narrowing. However, although it is clear enough that Japan is a much more affluent society than it was in the 1950s and that the asses have gained, the I Ion's share of productivity gains have gone to capital. The weakness of the independent labour movement, its willingness to accept compromise rather than confrontation, has contributed to this. Employers in other countries may look enviously at Japan's harmonious labour relations, but there is no guarantee that they will remain that way.

Business remains highly concentrated and has probably become more so over the past decade or so. The dualism which has long characterized Japanese industry remains deeply-rooted. Small- and medium-sized firms continue to produce a wide range of light manufactured goods, largely for the home market, but also partly for export. They are widely employed at first, or even second or. third remove, as sub-contractors for the big firms. There has been a marked tendency for the small- and medium-sized firms to bear the brunt of the depression; paying higher prices for their inputs and accepting lower prices for their products. The smaller firms, in particular, have had to accept lower profit margins and their bankruptcy rate has been high. Moreover, as the large firms face difficulties in markets for existing products, there has been a tendency for them to diversify, sometimes into fields previously dominated by the smaller firms. On the other hand, the specialization made possible by the sub-contracting system has advantages which the big firms would not like to lose. Industrial dualism seems likely to continue, though its form will undoubtedly change, to the disadvantage of the small- and medium-sized firms.

Wages and working conditions in the smaller firms tend to be less favourable than in the big firms: workers cannot count upon lifetime employment or retirement pensions. Few of them belong to trade unions and wage levels tend to be forced down below price increases. The smallest firms depend upon the family and its relations for labour. Others have been facing recession by increasing part-time employment of retired workers and married women. Something like half of the industrial labour force is affected by these conditions a fact often overlooked when praise is lavished upon Japanese labour relations and working arrangements. Of course, there are big differences between enterprises in this sector. Some smaller manufacturers have adopted new technologies, extended their product range and gained ground. Since the 1950s, productivity gains appear to have been larger in the small- and medium-sized sector than in large-scale industry. The former have also been able to obtain credit from the banks. Perhaps the gap between he more efficient smaller firms and large-scale organized industry as narrowing, giving scope for further increases in output and productivity. The recession from the late 1970s may have checked its process; the big firms have sought to maintain their profits at the expense of their smaller competitors and have driven harder bargains with their sub-contractors.

Japanese industrialization has maintained a momentum which as pushed it ahead of most of its rivals. Thrusting and aggressive sales policy, efficient organization and scientific management have all made their contribution. None of the elements of Japan's success have been trade secrets. Indeed, the Japanese firms often simply copied the best techniques of other countries, and adapted them their own needs. Their models, in the main, were drawn from he United States; subsequently they were able to penetrate the American market, as well as competing successfully with American and other foreign firms in third markets. The general dynamism of the economy, the lack of any serious domestic social or political challenge to the dominant cliques in politics and business have no doubt facilitated the process of expansion, giving Japanese capitalism its distinctive identity in the post-war period.

In a sense this process could be described as production for production's sake, hearing in mind that high profits are necessary 'or the dominant firms to justify continued investment at a high ate. Dedicated company men, seconded by their counterparts in he economic ministries, have master-minded the industrial effort after the style of an operation of war. As in war, there are wastes and casualties and the environment bears the marks of battle. In the interest of continued profitable expansion, caution tends to have been thrown to the winds. The big corporations have taken risks, but their risks have also been spread and hedged by their own diversified structures. Resort to bank lending and inflationary finance has been used on a scale which would have been regarded as most imprudent in many other countries. Government spending as regularly exceeded tax revenues, making the Japanese economy one of the most highly indebted in the world. On the other hand, it is an internal debt. It has been a cardinal policy of Japan to avoid dependence upon foreign capital, whereas other economic 'miracles', such as those of South Korea and Brazil, have entailed enormous foreign debts. Apart from the oil companies, the foreign MNCs have generally failed to establish much of a position in Japan, and when they have done so, domestic finance or control has often en present. On the other hand, the growing financial strength of Japanese corporations has enabled them to open their own branch plants in many countries, including the United States and Western Europe.

Japanese firms displayed considerable resilience in the face the sometimes violent economic changes of the period from 74. Serious recession or stagnation were averted. Depressed industries were run down but new, high-tech industries continued grow. Some labour-intensive processes were transferred to her, low-wage Asian countries. The main anti-crisis response as an intensified drive for markets, especially in the high-income countries of Western Europe and North America. These markets came indispensable for the continued growth of the Japanese economy; at the same time, building up current account surpluses available for investment In branch plants or the purchase of stocks and bonds and real estate. The home market grew slowly, though ere was some shift to services, but formal or informal protective barriers restricted imports. The Japanese continued to manifest a high propensity to save, a tendency which was perhaps reinforced by the ageing of the population. The American government continued exert pressure on Japan to lower trade barriers and to expand internal demand, with little success.

At the same time the economy was showing signs of 'maturity'. The phase of technological catching-up had come to an end. Wages and costs had risen while production had grown in countries like South Korea and Taiwan. Japan was no longer a high-growth country; a steady rate of around 4 percent was the best that could be expected. The huge trade surpluses and the savings habits of the population had made Japan a capital-rich country seeking new investment fields. As a major creditor, increasingly integrated into the world market, with powerful multinational corporations operating on a world scale, Japan was thrust into a new and unaccustomed position which neither government or business seemed to be fully prepared. The appreciation of the yen in 1987-88 was an omen of possible difficulties to come, notably by making exports more expensive. In the past, industry has faced up to such a challenge by cutting profit margins and cutting costs. While many countries, including the United States, are being urged to adopt austerity programmes to deal with their economic problems, the Japanese are being told to save less and consume more, for their own good as well as that of others. Because Japan has an inefficient and protected agriculture, food is more expensive than it might be. Even if food prices came down, for example by admitting more American farm products, it is not certain that this would open tip a market for manufactured goods on a scale which might substitute for sales abroad. Because of lack of space and the small scale of houses and apartments, there is a limit to the number of consumer durables and cars that the home market can absorb. Rising incomes are likely to go into more savings and services. There is room for much more social spending on the part of the government: a prescription which runs contrary to the currently prevailing trend towards liberalization and less state intervention in the capitalist world and is not likely to find favour in Tokyo.

SOCIAL COSTS

The emphasis on production, the subtle propaganda effort to create and maintain a consensus built around the assumption that what is good for tile big corporations is good for all Japanese, has meant that social goals have been given low priority. Consequently, industrialization has been attained at a social cost which is not taken into account in the overheads of firms or in the enthusiastic accounts of foreign journalists. Japan has one of the most serious problems of environmental disruption arid atmospheric pollution of any country in the world. Industrial and urban sprawl have ravaged large areas of the countryside. The rapid pace and increasing strain of urban living have caused health hazards, psychological disorders and a high suicide rate. While industry has been capable of turning out a huge volume of consumer goods, housing standards have remained low for the wage-earners. The still poor working standards and inadequate wages, as well as the exploitation of women workers, especially ill the smaller firms, has to be measured against the rise In real wages, and relatively good conditions found in the organized industrial sector. Thus rapid industrialization has had some profoundly disturbing social consequences in modern Japan. The major question for the future is whether the phenomenal industrial upsurge will continue and, if so, what will be its effects for Japan and for the world. Will Japan become the number two, or even number one industrial power? Is it the super-state of the future, the alternative form of capitalism from which other countries in the capitalist world will have to learn if they are to survive? The study of history provides no answers to these questions, but the answers that are given will affect the destiny of the whole of mankind in the twenty-first century.