Post Occupation Japan

From the 1950s to the 1980s, Japan's history consists mainly of its rapid development into a first-rank economic power, through a process often referred to as the "economic miracle". The post-war settlement transformed Japan into a genuine constitutional party democracy, but, extraordinarily, it was ruled by a single party throughout the period of the "miracle". This strength and stability allowed the government considerable freedom to oversee economic development in the long term. Through extensive state investment and guidance, and with a kick-start provided by technology transfer from the U.S.A. and Europe, Japan rapidly rebuilt its heavy industrial sector (almost destroyed during the war). Given a massive boost by the Korean War, in which it acted as a major supplier to the NATO force, Japan's economy embarked on a prolonged period of extremely rapid growth, led by the manufacturing sectors. Japan emerged as a significant power in many economic spheres, including steel working, car manufacture and the manufacture of electronic goods.

It is usually argued that this was achieved through innovation in the areas of labour relations and manufacturing automation (Japan pioneered the use of robotics in manufacturing). Throughout the period of the miracle, its annual GNP growth was over twice that of its nearest competitor, the U.S.A. By the 1980s, Japan - despite its small size(1) - had the world's second largest economy. These developments had a marked impact on its relations with the U.S.A., the foreign nation with which it had the closest links. The U.S.A. initially heavily encouraged Japan's development, seeing a strong Japan as a necessary counterbalance to Communist China.

By the 1980s, the sheer strength of the Japanese economy had become a sticking point. The U.S.A. had a massive trade deficit with Japan - that is, it imported substantially more from Japan than it exported to it. This deficit became a scapegoat for American economic weakness, and relations between the two cooled substantially. There was particular friction over the issue of Japanese car exports, as Japanese cars by this point accounted for over 30% of the American market. The U.S.A. also criticised the closed nature of the Japanese economy, which was marked by heavy tariff protection which made entry into the Japanese market difficult for foreign firms. Japan throughout the 1980s and 1990s embarked on a process of economic liberalisation aimed at appeasing American criticism. The car issue was dealt with through a series of "voluntary" restrictions on Japanese exports and by making factories in America.