REVIEW, T. NAKAMURA, THE POSTWAR JAPANESE ECONOMY (1981)

Takafusa Nakamura. The Postwar Japanese Economy: Its Development and Structure. Translated by Jacquelinle Kaminski. Tokyo: University of Tokyo Press, c. 1981.

Professor Takafusa Nakamura's newly-translated interpretation of the Japanese economy gives an insider's viewpoint that no available Western interpretations can rival. Academics may label the profusely documented study as revisionist. Lay readers who are prudent enough to skip over the infrequent algebraic formulas and who do not have the time to invest in analyzing 128 statistical tables will find the text more than sufficient to provide a solidly-grounded framework for interpreting the postwar Japanese economic phenomenon.
Formerly director of research at Japan's Economic Planning Agency, the author has divided his subject, like Caesar's Gaul, in partes tres. The first part treats the 1930's and 1940's. The second part analyzes the mechanisms of rapid growth prevailing from the Korean War (1950-53) to the Arab-Israeli War of 1973 and the ensuing oil crisis. Professor Nakamura describes in his third section the challenge of maintaining stable growth and furthering social consolidation for the immediate future.
One of the author's most striking arguments, not often discussed in English, is that the mechanisms responsible for Japan's current economic success were improvised during the 1930's in order to manage the China Incident and to prepare for what the Army thought would be an attack on the Soviet Union. By 1939-40, full-scale price, wage and profit controls were erected over the entire economy, as well as resource allocation mechanisms (rationing) for scarce commodities such as rice and steel. Control associations were established in designated key industries by 1941. In 1944 the Bank of Japan was directed to provide unimpeded funding to the munitions industry. The role of the present-day Ministry of International Trade and Industry (MITI) can be traced back to the wartime controls of the Commerce and Munitions Ministries. Under the subsequent American Occupation, wartime "patriotic associations" were miraculoously reborn as vertically-organized company unions offering lifetime employment ant total job security. The contrast between wartime controls and the more classical, free-market enterprise economy from the Meji Restoration to the 1920's is hinted at, but not explained in detail.
During the Occupation, 14 of the great cartels (zaibatsu), which in toto disposed of 40% of all Japanese stocks, were formally dissolved. Land reform reduced tenant farming from 46% to 11% of the available arable land. Organized unions rose from zero to 60% of the labor force of big companies in 1948, accompanied by mass dismissal of employees implicated in strikes orchestrated by the left wing of the Socialist party. Occupation authorities also vigorously championed the conversion of industrial fuel from native coal to imported oil.
While the Five Year Plan adopted in 1948 aimed at restoring living standards to the level of 1934, the yen, under American pressure, underwent a forced deflation to a 360:1 exchange rate. But official expectation of a long and painful recovery period were made obsolete by the Korean War, when US special procurements and military expenditures were treated, for bookkeeping ppurposes, as an "export." Guided by a continuum of bureaucrats trained in applying wartime controls, buoyed up by an undervalued currency, fueled by cheap Arab oil and protectd domestically by patriotic company unions, the Japanese economy took off like a Zero.
But on closer examination today, Japanese commercial practices leave the companies exceptionally vulnerable to fluctuations in the export market. A third of Japanese trade is now with the United States, making Japanese companies dependent on the American business cycle. The consequences of this dependence are magnified by the extraordinarily low equity rationm now estimated at 25% or less. Stratospheric indebtedness in an era affected by US bubble-level interest rates further increases Japanese sensitivity to the external economic environment. Export to the United States is a key variable; access to secure Middle Eastern oil at stable prices is another.
The Japanese national economy is so sharply stratified between the great combines and smaller businesses, labor and agriculture, that the term "dual structure" is commonly employed. (This phenomenon is treated in terms of the US economy by Professor Robert Averitt of Smith College, whose 1968 book The Dual Economy was recently hailed in Boston as an "underground classic.") More than 95% of the part-time labor force are women who serve as a disposable marginal economic reserve. Smaller businesses hire and lay off the bulk of the labor force and depend on the great combines through subcontracting arrangements (again, a practice developed in wartime). As the Japanese economy has prospered, the subcontracting practice has expanded overseas to South Korea and Taiwan.
Once the panic attendant on the oil crisis of 1973 subsided and the lesser economic shock of an upward revaluation of the yen was absorbed, Japan entered a period of readjustment in the 1970's which Nakamura hopes will be an era of "stable growth." But the current international payments deficit and declining export opportunities coupled with a volatile oil procurement situation suggest that the economic weather may be clouded. US policy planners would be well advised to exercise restraint in addressing their own self-induced fiscal and oil pricing problems, without seeking a short-term melioration by diverting public attention to the Japanese economy as a convenient scapegoat.
Business strategists who can appreciate a penetrating, honest and surprisingly frank study of a unique economic mechanism will find no better model than The Postwar Japanese Economy. It is a world-class performance.

Submitted to The Asia Mail in Alexandria, VA, in November, 1982. The journal terminated its publication before the review could be printed. No kill fee was offered.