Economic Development of Japan Final Exam

ECONOMIC DEVELOPMENT OF JAPAN -- FINAL EXAM

(3:00pm–4:00pm, July 23, 2010)

Instructor: Kenichi Ohno

 PLEASE WRITE CLEARLY. Poor handwriting will be ignored and you will get no points. Any writing instrument (pen, pencil, etc) can be used as long as it is readable.  Answer ALL questions. You may answer in any order. Each question is worth 20 points.  Use only TWO official answer sheets. Use only FRONT side of each answer sheet.  No books, data, slides, documents, notebooks, or electronic devices are allowed.  You may leave the room if you finish early. At 4:05pm, model answers will be distributed.  Overall exam results will be posted in the web and your graded exam will be returned through GRIPS Academic Office (some time next week).

Q1. Evaluate the economic policies of the Bakufu (Tokugawa shogunate government) in the Edo period (1603-1867). Did the Bakufu respond effectively to the changing socio-economic structure?

Q2. Do you agree with the following statement of Prof. Ha-Joon Chang (Cambridge Univ.) about import tariffs in the Meiji period (1868-1912)? What kind of tariff policy did Japan adopt after it regained full tariff rights in 1911?

When it first opened up and embarked on its modern industrial development, Japan could not use tariff protection to promote new industries because of the unequal treaties that it was forced to sign, which bound its tariff rate to below five per cent… given the importance of tariffs as a tool for industrial promotion at the time (when other policy tools had not yet been invented and/or were considered ‘too radical’), its lack of tariff autonomy was a considerable handicap. (Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective, Anthem Press, 2002, pp.63-64).

Q3. Explain the industrialization policy of Okubo Toshimichi (1830-78), one of the top officials of the early Meiji period. What was his view on free trade and private sector- led growth? Q4. What were the causes of the Showa Depression (deep recession around 1930- 32), and what policy measures did Japan use to get out of this depression?

Q5. Describe Japan’s Small and Medium Enterprise (SME) policy after WW2 up to now.

Model answers

(Other answers are also possible. Long answers do not necessarily improve points. Details of years, laws, person names, etc. are not necessarily required in your answers.)

A1. The Bakufu’s economic policies and tax revenue were based on the rice production of self-sufficient family farms. As agricultural productivity rose, cash crops increased, nationally unified markets formed, and commerce, finance, and light industries prospered, the Bakufu was unable to promote these activities effectively or capture gains from them. Its policies were often conservative and regulatory. Other features of the Bakufu’s economic management included monopoly of foreign trade and major mines, frugality imposed on samurai, farmers, and merchants to cope with budget crisis, and debasement of metal money which caused inflation especially toward the end of the Edo period.

A2. Uniformly low tariffs did not seriously delay economic development in early Meiji, because initial exports were primary commodities (silk, tea, etc.) and Japan did not have modern industries. However, as the cotton industry grew strongly and machinery and chemical industries started to form in the late 19c and the early 20c, Japanese industries began to compete more directly with Western products. Tariff rights were regained partially in 1899 and completely in 1911. Subsequently, Japan used tariffs to protect “infant” manufacturing industries. It may even be said that the tariff rights were restored just when they were needed. Japan continued to protect its industries for a long time until the 1960s and 70s. [Your may hold a different view about this. Just be consistent.]

A3. After the official trip to Western countries (Iwakura Mission 1871-73), Okubo was convinced that the strong hand of government was needed to propel industrialization. He did not believe that latecomer countries would automatically industrialize under free trade or private initiatives. As the first Minister of Home Affairs, he established state-owned enterprises equipped with imported machinery, assisted influential businessmen such as Iwasaki (Mitsubishi Zaibatsu) and Godai (business coordinator in Kansai) for new enterprises and import substitution, held trade exhibitions, etc.

A4. The Showa Depression was caused by (i) the global Great Depression originating from the US in 1929; and (ii) deflation policy of the Minsei Party government 1929-31 (Finance Minister Inoue) which imposed macroeconomic austerity and restored the former gold parity (an overvalued exchange rate). The Seiyukai government 1931-32 and subsequent governments (Finance Minister Takahashi) reversed this by floating (depreciating) the yen and adopting large public spending, easy money, and central bank financing of the fiscal deficit. By around 1934, Japanese industries were firmly on a recovery track. Japan was the first country among major industrial powers to get out of the Great Depression.

A5. In the early post WW2 period, the main purpose of SME policy was to assist disadvantaged SMEs with low management and technology capabilities which were often subjected to exploitation by large parent firms. SME workers faced low wage and job insecurity, while educated employees at large firms enjoyed high salary and lifetime employment (“dual economic structure”). Management, technical, and financial supports were provided and the shindan (SME diagnostic and advisory) system was set up. As high growth continued, surplus labor from rural areas disappeared and labor shortage emerged around 1960. Some SMEs improved technology and became the backbone of Japanese machinery industries. As a result, policy focus shifted from social protection of weak SMEs to the encouragement of high-tech, innovative SMEs.