How did Ja­pan and Ger­many be­come global pow­er­houses?

The China Post - - COMMENTARY -

Ger­many and Ja­pan rose from the ashes of World War II to be­come global eco­nomic pow­er­houses in a few decades. But how did they achieve this re­mark­able feat so quickly, and what is the legacy of these par­al­lel eco­nomic “mir­a­cles” to­day?

What Was the State of Both

Coun­tries af­ter WWII?

Both na­tions lay in ru­ins. A sig­nif­i­cant pro­por­tion of the Ja­panese pop­u­la­tion was wiped out dur­ing World War II, in­clud­ing an es­ti­mated 210,000 peo­ple in the atomic bomb­ings of Hiroshima and Na­gasaki alone.

Ger­many had also lost mil­lions of sol­diers and civil­ians, with hun­dreds of thou­sands more killed in oc­cu­pied Eastern Europe.

Bri­tish and U.S. bom­bard­ments of Ger­man cities such as Dres­den, con­ducted with con­ven­tional and in­cen­di­ary ex­plo­sives, caused a firestorm that killed up to 25,000 peo­ple and wiped out the his­toric city cen­ter.

A quar­ter of Ja­pan’s na­tional wealth evap­o­rated dur­ing the war.

By 1945, Ger­many was un­der the con­trol of the Al­lied Pow­ers: the United States, the USSR, Bri­tain and France.

Ja­pan was oc­cu­pied by the United States af­ter its for­mal sur­ren­der.

How Fast Did They Re­cover?

Ja­pan be­came the sec­ond largest econ­omy in the world af­ter the United States in 1968, ex­pe­ri­enc­ing av­er­age growth of up to 9 per­cent per year be­tween 1955 and 1973.

The Ger­man “Wirtschaftswun­der” eco­nomic mir­a­cle ac­cel­er­ated even faster, trans­form­ing West Ger­many into the world’s sec­ond largest eco­nomic pow­er­house by the 1950s.

“Un­like Ger­many, carved up by four vic­to­ri­ous al­lies, Ja­pan had to engi­neer its re­cov­ery while oc­cu­pied by a sin­gle power,” pro­fes­sor Tag Mur­phy re­counts in a re­cent book, en­ti­tled “Ja­pan and the Shack­les of the Past.”

“The United States took on re­spon­si­bil­ity for Ja­pan’s se­cu­rity,” al­low­ing to it fo­cus on its eco­nomic re­cov­ery.

What Ef­fect Did the Cold War

Have on Eco­nomic Pol­icy?

In 1949 Ger­many split into two coun­tries, with the oc­cu­pied zones be­long­ing to the three Western pow­ers merg­ing to form the Fed­eral Re­pub­lic of Ger­many (FRG), while the Sovi­ets es­tab­lished the Ger­man Demo­cratic Re­pub­lic (GDR).

The two Ger­manys would only for­mally re­unify in 1990.

The FRG re­ceived US$1.3 bil­lion in aid for re­con­struc­tion from the U.S.-fi­nanced Mar­shall Plan, but the leader of the USSR, Joseph Stalin, re­fused Amer­i­can money for the GDR.

The Lon­don Debt Agree­ment of 1953 saw 60 per­cent of Ger­man loans and repa­ra­tions writ­ten off.

The es­tab­lish­ment of a West Ger­man econ­omy built along cap­i­tal­ist lines by con­ser­va­tive chan­cel­lor Kon­rad Ade­nauer and his fi­nance min­is­ter Lud­wig Erhard saw the coun­try rapidly pros­per be­tween 1946 and 1975, with an­nual growth at around 7 per­cent, although it also ex­pe­ri­enced re­ces­sion dur­ing those years.

Un­em­ploy­ment fell from 11 per­cent in 1950 to 0.7 per­cent in 1965.

Amer­i­can oc­cu­pa­tion in Ja­pan lasted un­til 1952, dur­ing which time at­tempts were made to dis­man­tle Ja­panese busi­ness con­glom­er­ates known as “za­ibatsu.”

The Korean War of 1950-53 was a boom time for Ja­panese firms, whose tech­no­log­i­cal and man­u­fac­tur­ing prow­ess was in high de­mand by U.S. forces.

Si­mul­ta­ne­ously, in­creas­ing wages in Ja­pan cre­ated con­sumer de­mand for do­mes­tic ap­pli­ances and other goods.

Be­yond Gov­ern­ment Pol­icy,

What Drove Growth?

In Ja­pan and Ger­many, eco­nomic turn­around was driven by firms with strong em­ployee loy­alty gained by the prom­ise of ris­ing wages and jobs for life, as well as in­no­va­tive prod­ucts that were ex­ported world­wide.

Whether they were pre-war con­glom­er­ates such as Mit­subishi or Su­mit­omo, smaller pre-war com­pa­nies like au­tomaker Toy­ota or new firms rep­re­sent­ing now­fa­mil­iar brands — such as con­sumer elec­tron­ics gi­ant Sony and car man­u­fac­turer Honda — Ja­panese firms were rigidly hi­er­ar­chi­cal in­sti­tu­tions that closely re­sem­bled a fam­ily or re­li­gious in­sti­tu­tion, ac­cord­ing to ex­perts.

Tight co­or­di­na­tion by the pow­er­ful in­dus­try min­istry helped drive eco­nomic growth.

“Hu­man in­fra­struc­ture pro­vided a very fa­vor­able en­vi­ron­ment: Ja­pan had a wide pool of highly mo­ti­vated, dis­ci­plined, dili­gent and quick-to-learn la­bor­ers pre­pared to work long hours for (ini­tially) quite low wages and re­ally com­mit­ted to serv­ing their com­pa­nies,” Ivan Tselichtchev, an economist at Ni­igata Univer­sity said.

“This was am­pli­fied by the for­ma­tion of a unique Ja­panese com­pany model with long-term em­ploy­ment, se­nior­ity and co­op­er­a­tive com­pany unions as its pil­lars.”

In Ger­many, com­pa­nies in­clud­ing Volk­swa­gen, Siemens and Thyssen, op­er­at­ing in the automotive, elec­tron­ics and en­gi­neer­ing sec­tors, were all seen as pil­lars of post-war growth.

Where Do Ja­pan and Ger­many

Stand Glob­ally To­day?

Ja­pan fell be­hind China in an­nual GDP terms in 2010, to its cur­rent third place glob­ally.

Upon tak­ing of­fice in late 2012, Prime Min­is­ter Shinzo Abe launched a pro-spend­ing pol­icy blitz that also called for eco­nomic re­forms and mas­sive cen­tral bank stim­u­lus.

The slow death of the cul­ture of life­time em­ploy­ment and a greater de­pen­dence on part-time or ca­sual em­ploy­ment means Ja­pan’s work­ers, not the firms that em­ploy them, bear al­most all the costs of the job mar­ket’s lim­ited flex­i­bil­ity.

Ger­many has the fourth largest econ­omy in the world, and re­forms over the past decade have en­abled job cre­ation and have driven un­em­ploy­ment to one of the low­est rates among ad­vanced economies, cur­rently at around 6 per­cent.

How­ever, many com­pa­nies are strug­gling with China’s slow­down and re­cent volatil­ity over the Greek cri­sis, as Ger­many’s cen­ter stage role within the Euro­pean Union and its pow­er­ful in­flu­ence over the di­rec­tion of Europe’s sin­gle cur­rency comes un­der scru­tiny.

Other Euro­pean Union mem­ber na­tions are the big­gest mar­ket for Ger­man ex­ports.

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