[Public Lecture Series] Economics #16 History of the Japanese Economy (1): From High Economic Growth to the Oil Crisis and Stable Growth

Hello everyone.
Today's theme is a deep dive into the major unit, "The History of the Japanese Economy and Recent Challenges," where we will race through the turbulent Showa era, covering high economic growth and the oil crisis, and moving on to the subsequent period of stable growth.
Please don't think, "This is just old history, right?" The smartphones you use today, the trains you ride, and even the way companies you might work for in the future operate... the foundations for all of these were built during this era. It is also a "super important zone" for the Common Test, so let's unravel it thoroughly, starting from the background!

1. Why was postwar Japan able to achieve a recovery called a "miracle"?
The year was 1956 (Showa 31).
A famous phrase that would go down in history appeared in that year's "Economic White Paper."
"It is no longer the postwar period."
Just over 10 years after the end of the Pacific War, which had caused devastating damage, Japan had completely recovered to its pre-war economic level.
Then, from around 1955 to 1973, for about 20 years, Japan grew its economy at a staggering pace of about 10% annually. This is high economic growth.
[Major business cycles of high economic growth (names that appear on tests!)]
Jimmu Boom (1955-57) → Iwato Boom (1958-61) → Izanagi Boom (1965-70)
※A characteristic feature is that the names are taken from Japanese gods and mythology!
Now, here is the first "question."
Why was Japan, with no resources or land, able to achieve such rapid growth?
There isn't just one reason. It happened because several factors miraculously clicked together.

1. Abundant, high-quality labor force: Young, diligent workers moved in large numbers from rural farming villages to urban factories (the so-called "golden eggs").

2. High savings rate: Japanese people diligently deposited their money in banks. Banks lent that money to companies, and companies made capital investmentsto build state-of-the-art factories (it was said that "investment calls for more investment").

3. Cheap and abundant oil resources: At the time, oil could be imported cheaply and in large quantities from the Middle East, so the primary energy source shifted rapidly from coal to oil (energy revolution).

4. Technological innovation and eager adoption: Japan absorbed advanced Western technology and created better products.

Furthermore, the Hayato Ikeda Cabinet launched the Income Doubling Plan (1960), which ignited the motivation of the people. They declared, "We will double everyone's salary in 10 years!" and amazingly, they actually achieved it in just a few years.

2. Changes in daily life and "return to the international community"
As the economy grew, the "things" in your homes changed dramatically.
In the late 1950s, the "three sacred treasures (black-and-white TV, washing machine, refrigerator)" became widespread, and in the late 1960s, the "3Cs (color TV, car, cooler/air conditioner)" became objects of desire.
Look at the graph in the textbook. You can see that from the 1960s to the 70s, the penetration rates of TVs, washing machines, and refrigerators jumped at a near-vertical angle to nearly 100%. This was the moment when the burden of housework decreased and people's lifestyles changed fundamentally.

Toward a "Japan of the World"! Transition to an open economic system
As the domestic economy became wealthy, Japan joined the ranks of the world. Let's organize the flow of "joining and upgrading to international organizations," which you absolutely cannot miss on the Common Test.

• GATT Article 11 country (1963): Japan became a country that could no longer restrict imports based on a deficit in its balance of payments (the country's household account book).

• IMF Article 8 country (1964): Similarly, Japan became a country that could no longer restrict exchange transactions (exchanging money with foreign countries) based on a deficit.

• OECD (Organisation for Economic Co-operation and Development) membership(1964): Joined the OECD, known as the "club of developed nations."

• Capital liberalization(1967–): Foreign investors became able to freely invest capital in Japanese companies.

Japan shifted gears all at once toward an open economic system that liberalized trade and the movement of money. At the same time, Japan's industrial structure changed drastically. As the textbook graph shows, the share of the

primary industry, such as agriculture, which once accounted for more than half, declined rapidly, while the shares of the secondary industry, such as heavy and chemical industries, and the tertiary industry, such as service industries, increased sharply. This is called the advancement of industrial structure (Petty-Clark's Law).

3. A Sudden End: The Nixon Shock and the Oil Crisis
The Japanese economy was in great shape, but it was hit by "two major shocks" in the 1970s. Here is the second question. Why did Japan's high economic growth, which had been going so well, suddenly come to an end?

① The First Shock: The Nixon Shock (1971)
At the time, the world's monetary rule was fixed at 360 yen to the dollar. However, the U.S. economy struggled, and then-President Nixon suddenly announced the
suspension of gold-dollar convertibility. As a result, the rate was revalued from 360 yen to 308 yen per dollar
(the Smithsonian Agreement), and eventually shifted to a floating exchange rate system (1973–). A stronger yen made Japanese export products more expensive, dealing a major blow. ② The Second Shock: The First Oil Crisis (1973)
Adding insult to injury was the first oil crisis, triggered by the Fourth Middle East War. The price of crude oil jumped about fourfold! Panic ensued, with people saying, "Oil is running out! Toilet paper is running out!" and paper products disappeared from supermarkets across the country (in hindsight, it was hoarding based on rumors, but the fear at the time was immense). Due to the high price of crude oil, the worst phenomenon occurred: prices rose sharply (inflation) while the economy was in a recession and wages did not rise—this is called stagflation

. Thus, in 1974, Japan recorded its first
negative growth in the postwar period, and the high economic growth that had lasted for about 20 years came to an end.

4. The "Stable Growth" After Overcoming the Crisis and Japan-U.S. Friction
However, this is where Japanese companies showed their strength. The
second oil crisis occurred in 1979, but Japan learned from the first one and responded calmly. Companies implemented lean management to "thoroughly cut unnecessary costs" and honed energy-saving technologies that did not rely on heavy energy consumption. They shifted from "heavy, thick, long, and large industries" like steel and shipbuilding to "light, thin, short, and small industries" like semiconductors and automobiles, which are
high-tech industries. In this way, Japan entered an era of stable growth
, a moderate but disciplined growth of about 4–5% per year.

Troubles that come with prosperity: Japan-US economic friction
As a result of Japanese-made energy-efficient and durable automobiles and home appliances selling explosively in the United States, American industry was pressured, leading to intense disputes between the two countries. This is Japan-US economic friction.
The disputes, which initially involved textiles and steel, expanded to automobiles and semiconductors. In the 1990s, the Japan-US Structural Impediments Initiative and other talks were held, and Japan faced strong pressure from the US, with demands to "open up your market, it's too closed!"
(*This intense pressure from the US would trigger the "Plaza Accord" we will learn about next time, eventually leading Japan toward an unprecedented "bubble economy" and its subsequent collapse...!)
Summary and key points for today
These are the terms for today's lesson. Let's see if you can explain them without looking at the textbook!

• High Economic Growth: Rapid economic expansion of about 10% per year from around 1955 to 1973.

• National Income Doubling Plan: A plan proposed by the Hayato Ikeda cabinet to double income in 10 years.

• GATT Article 11 Country / IMF Article 8 Country / OECD: Important steps toward transitioning to an open economic system.

• Sophistication of industrial structure: A shift in the center of the economy from primary industries to secondary and tertiary industries.

• Suspension of gold-dollar convertibility (Nixon Shock): The trigger for the collapse of the fixed exchange rate system of 360 yen to 1 dollar.

• First Oil Crisis: Due to soaring crude oil prices, Japan recorded its first negative growth in the postwar period in 1974.

• Stagflation: The worst-case scenario where economic recession (deflationary factor) and rising prices (inflation) occur simultaneously.

• Light, thin, short, and small industries: Industries centered on automobiles and semiconductors due to energy conservation and high-tech advancements.

• Stable growth: Sustainable growth of about 4-5% per year after overcoming the oil crisis.

• Japan-US Structural Impediments Initiative: Discussions held regarding the trade surplus and market opening between Japan and the US.

Next time: The bubble economy and its collapse
Next time, we move from the Showa era to the Heisei era. We will cover the "bubble economy and its collapse," where all of Japan was under the illusion that they had become rich, only to be brought down all at once.
Why did land and stock prices jump to unbelievable levels? And why did it burst? This is an important episode that also connects to the stagnation of Japan today, known as the "Lost 30 Years." Thank you for your hard work.