Japan-Stretagy-for-Growth

HarvardBusinessSchool9-378-106Rev.April1,1998ResearchAssociateAudreyT.SproatpreparedthiscaseunderthesupervisionofProfessorBruceR.Scottasthebasisforclassdiscussionratherthantoillustrateeithereffectiveorineffectivehandlingofanadministrativesituation.Copyright©1977bythePresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685orwriteHarvardBusinessSchoolPublishing,Boston,MA02163.Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,usedinaspreadsheet,ortransmittedinanyformorbyanymeans—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.1JapanD1:AStrategyforEconomicGrowthIn1952astheOccupationpreparedtodepart,itsuggestedthatJapanreviewtheinstitutionalandotherchangesofthepastsevenyears.RegardlessofwhatpoliticalandeconomicsystemJapanmightchoose,however,analystswonderedwhethershewouldbeabletomaintain“anysatisfactorystandardoflivinginthefuture.”Despitetheinfusionof$2.1billioninU.S.aidand$1.5billioninU.S.offshoreprocurementfortheprosecutionofthewarinKorea,Japan’srealGNPhadonlyrecentlyrecoveredthelevelattainedin1936.Tokeepongrowingasoffshoreprocurementdeclined,Japanwouldneeda“huge”exporttrade.Butwherewasshe“tofindhermarketsinadividedworldandinaFarEastdisruptedbyrevolutionsandbitterlydeterminednottotradewithher?”1Despitethisgloomyoutlook,withinafewyearsJapan’seconomywasgrowingatarate“withoutprecedentorparallelelsewhere.”By1970hertotalGNPexceededthatofBritain,France,andWestGermany(seeTableA),andsomewerepredictingthatbytheyear2000shewouldhavepulledaheadofRussiaandtheUnitedStatesaswell.2Suchperformanceandsuchprospectsrousedworldwideinterest.HowhadJapanachievedsuchphenomenalgrowth?What,ifany,threatsseemedtodarkenthefuture?TableATrendofGrossNationalProductinConstant1972Prices,1952-1971(inbillionsofU.S.dollarequivalents)JapanUnitedStatesFranceWestGermanyUnitedKingdom195253.9577.278.194.785.71971306.91089.0206.7277.6148.3Growth(in%)469.488.7164.7193.173.0Source:U.S.,AgencyforInternationalDevelopmentGrossNationalProduct,GrowthRateandTrendData.Washington:U.S.GovernmentPrintingOffice,1974.1EdwinO.Reischauer,TheUnitedStatesandJapan(Cambridge,Mass.:HarvardUniversityPress,1954),pp.50-51.2JamesC.Abegglen(ed.),BusinessStrategiesforJapan(Tokyo:SophiaUniversityPressfortheBostonConsultingGroup,1970),pp.1,25,179,andpassim.378-106JapanD1:AStrategyforEconomicGrowth2ReviewingtheInstitutionalFrameworkAlthoughtheOccupationhadinvitedJapantoreviewthechangesofthepastsevenyears,bothcountriesknewthatherfreedomofdecisionwassubjecttocertainconstraints.Thus,JapandependedontheUnitedStatesforalargeshareofhertrade,forherdefenseumbrella,andforsponsorshipofherpendingapplicationtobecomeamemberoftheOrganizationforEconomicCooperationandDevelopment(OECD)aswellasasignatortotheGeneralAgreementonTariffsandTrade(GATT).PoliticalInstitutionsConstitutionaldevelopmentsConcernwithU.S.reactiondidnotpreventsomeJapanesefromwantingtorevisetheirnewconstitution—especiallythecontroversialprovisionsthatmadethepeople,nottheemperor,sovereign,andthatdeniedJapantherighttowagewar.Inanyevent,however,theconstitutionsurvivedunchanged,itsrenunciationofwarprovingtobeparticularlypopular.TheJapanesealsorejectedamilitaryestablishmentotherthanasmallinternalself-defenseforce.Thisresultedinasubstantialbudgetarysavingscomparedtoothercountries.(See TableB.)PartiesBesidesanewconstitution,theOccupationeraleftJapanwithaspectrumofpoliticalparties.  Thisspectrumsurvivedafter1952,dominatedbyconservatism.Undertheguidanceofbigbusiness,theconservativesnotonlymanagedtoenlistthesupportoffarmersandsmallbusiness,theyalsomanagedin1953tomergetheirtwomajorpartiesintoone,theLiberalDemocraticParty(LDP).Incontrast,theleftnevermanagedtoextenditspowerbasebeyondlaborandintellectualsortohealtheriftsthatdivideditssupportersintoatleasttwopartiesifnotthree:averysmall(butgrowing)CommunistParty,plusleft-andright-wingsocialistfactions.TableBMilitaryExpendituresasaShareofGNP,1970(in%)aJapanItalyWestGermanyFranceUnitedKingdomUnitedStatesU.S.S.R.(est.)0.82.62.93.85.67.88.0Source:PeterG.Peterson,TheUnitedStatesintheChangingWorldEconomy,vol.2,Washington:U.S.GovernmentPrintingOffice,1971,chart6.aExcludesnonmilitaryspaceandatomicenergy.AlthoughtheLDPremaineddominant,itsstrengthintheDietshowedaslowdecline(seeChart1).Thus,observersbelievedthatthepoliticalprospectsoftheleftwerenothopeless.Combined,itsseveralfactionsusuallywonfrom35%to40%oftheDiet.Aminorityofthissizemightbeconvertedintoamajoritybyanyofanumberoffactors—amongthemadecisionbythesocialiststhemselvestobecomelessrigidlydoctrinaireandMarxist(“dottilyMaoist”assomesawit).3AsWilliamW.Lockwoodputit,“UntestedasyetisthesuccessthattheSocialistPartymightachieveifitshouldmovedecisivelyawayfromitsnarroworientationasapartyofthe‘workingclass’andmakeabroadappealtothemassesinthemiddle.”43NormanMacrae,TheRisenSun,TheEconomist,June3,1967,p.XXIX.4WilliamW.Lockwood,(ed.),TheStateandEconomicEnterpriseinJapan:EssaysinthePoliticalEconomyofGrowth(Princeton,N.J.:PrincetonUniversityPress,196