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Consider Japan

Consider Japan is the seminal article about the New Japan and was originally published in The Economist in two parts on the 1st and 8th of September 1962. It has been credited by many Japanese as being the first account of how Japan was changing after the Second World War, and how the Japanese themselves were thriving now they had control of their own economy. When Norman Macrae retired, he was honoured by the Emperor of Japan with the Order of the Rising Sun, due in part to this survey.

Chapter I

The Most Exciting Example

At the end of 1951 Mr Joseph M. Dodge, the Detroit banker who had tried (without consistent success) to impose stern policies of demand restraint upon the Japanese government during the dynasty of General MacArthur, shook the dust of a once more independent Tokyo off his feet. His parting message was not designed further to endear him to the Japanese people. “At present,” declared Mr Dodge severely, “Japan is suffering from a plague of false legends, which include some dangerous delusions.” He then listed fifteen of these delusions, in language which will strike familiar chords for connoisseurs of recent British cabinet ministers’ speeches. The delusions included:

That increased production without a parallel increase in exports represents sound progress.... That inflation can easily be offset by increased production. ... That a nation that must export to live can afford to price itself out of its export markets with a domestic inflation. ... That granting progressively larger amounts of commercial bank credit for capital purposes can be substituted for the normal processes of capital accumulation....

“The progress and present favourable status of Japan,” concluded Mr Dodge, “has been the result of extremely favourable external circumstances, which cannot be expected to be repeated and continued indefinitely.” He then returned to the United States (average growth rate since then about 2½ per cent per annum), and sat down in his Detroit bank awaiting Japan’s inevitable crash.

In the decade since then Japan, continuing and following almost precisely the policies which Mr Dodge had castigated and opposed, has seen its real national product increase at an average pace of over 9 per cent a year, its industrial production and rate of manufacturing exports more than quadruple, its urban population make the great breakthrough into the first modern consumer oriented economy in Asia. In the process it has seen the average Japanese’s expectation of life (now just over 65 for a man, just over 70 for a woman) rise to ages that are now actually ten years longer than they were only twelve years ago. There are some who will regard this last achievement alone as one of the most exciting and extraordinary sudden forward leaps in the entire economic history of the world.

Moreover, we are talking here not only of a trailblazing pioneer for Asia; we are dealing with a story that has by now deep implications and parallels for Europe as well. From the welter of remarkable sets of figures about modern Japan, British readers should perhaps first pick out two. First, of the babies who were born in the year after General Doolittle’s bombs first fell on Tokyo, so far as one can see from the available educational statistics, only just over 40 per cent left school at the minimum leaving age of 15 in 1958; another 45 per cent or so stayed on at high school until 18; and more than another 10 per cent are currently passing through college or university. The equivalent figures in Britain were over 60 per cent leaving school at 15, around 30 per cent at 16 to 18, and only about 7 per cent going on to college or university. Moreover, the bias of later education in Japan is much more heavily technical, and their big firms train skilled workers more assiduously and deliberately than most of their rivals in Britain. Those Englishmen who think of Japan as a backward country of adaptable but unskilled labour are talking nowadays through their hats as far as Japan’s new and younger workers are concerned; this is, in point of fact, a more lengthily educated and technologically skilled generation of young Japanese who are now moving into their modern factories than their contemporaries among young people in Britain.

Secondly, investment in productive capital equipment in Japanese industry in recent years, on a straight yen-sterling exchange rate basis, seems to have been about one-third larger than equivalent investment in industry in Britain. Admittedly, Japan has a labour force nearly twice as large as Britain; but in the competitive, non-agricultural, big-company, modern sector of industry – into which the majority of both the new Japanese investments and new young Japanese workers are moving – Japan’s total labour force is actually still rather smaller than ours. This new generation of more skilled Japanese is moving into factories where entrepreneurs are currently putting behind each one of them in the larger factories a greater force of new and modern capital equipment per head than is being put behind their rather less educated and less well trained contemporaries in Britain; in a few years’ time, on present trends, logic would suggest that they could beat us competitively in a much wider field of industry than most people in Britain at present begin to imagine – even if their wage rates in this modern section of industry do at last go up towards our standards too.

All this has been achieved in a country which seventeen years ago lay in ruins, which even ten years ago had only just re-attained its prewar level of production, and which has suffered far greater disabilities in its traditional export markets (because of the nature of its exports, and the closing of China) than postwar Britain has done. If all this is the result of internal policies which wise men thought would bring about a crash, then, in the name of simple economic common sense, government economists and apostles of conventional economic wisdom from the entire world should be coming to Japan to study just how to emulate it.

The trouble is that one is fearful that conventional wisdom may be going to stop the advance instead. One of the done things to say in Japan in early 1962 – it was said to your correspondent on more than one occasion was that the Japanese must now learn respectable economics from the British and slow down their rate of growth (perhaps permanently) in order to push the pressure on their resources down. This seems a very curious view. For consider the contrast between Japan and Britain, two countries with very similar import structures and an astonishingly similar tendency to run into import deficit at one particular stage of the internal trade cycle. Consider it even in terms of the export figures which British spokesmen themselves generally think should be the main criteria. Japan in the last eight years has marked up the biggest rate of growth in both production and exports in the world (217 per cent increase in industrial production from 1953 to 1961, 232 per cent increase in exports). Britain, by following an almost diametrically opposite policy, has marked up one of the slowest rates of increase in both (28 per cent increase in production, 42 per cent increase in exports). Obviously in these circumstances the British economy has lessons to learn from the Japanese, not the other way round. This will set out your correspondents’ view – both for western and eastern ears – on what those lessons are.