Japan's Economy on the Road Back

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Japan's Economy on the Road BackAuthor(s): Jerome B. CohenReviewed work(s):Source: Pacific Affairs, Vol. 21, No. 3 (Sep., 1948), pp. 264-279Published by: Pacific Affairs, University of British ColumbiaStable URL: http://www.jstor.org/stable/2752103 .

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Japan's conomy n theRoad BackJerome . Cohen

THE Japaneseconomyn the three ears nderOccupationasbeen characterizedytwo basic but divergentrends. hare-and-

tortoiseace eems o be inprogress etween mountingnflationn theone hand anda slowrevival f ndustrialctivityn theother. he two

are, of course,n effect iedtogether. he former ends o retard helatter,whilethe agonizingpace of the atter ives clearfield o theformer.

The heritage f war for ny defeated ountrys usually periodofeconomic haos nd nationalmisery. anyof theproblems hichhaveloomed arge n Japan uring hepastthreeyears ave their oots eepin wartime islocations. o cite but a fewexamples, oal outputwasbound o suffereverely,hetherurrenderame n 945 or n 947,

because of the suicidal under-maintenancef the minesduring thewar.' The very actof surrenderaused sharpdrop n output s a re-sultof the void n themining aborforce eft ythedeparting oreanand Chineseminerswhohad been mpressedntowartime abor erv-ice. The deliberate annibalizationf equipmentn consumer oodsindustriesmade inevitable grave ack offacilities nd of supply nthe mmediate ostwar eriod.The mounting ote ssue nd thegrow-

ingusemadeof central ankcredit ythecommercial anks,duringthe lastyearofthewar, gaveriseto a certain egreeof inflation,t-tendant ponthe oosening fcontrols ith hecollapse fgovernmentprestigendauthorityponsurrender.

The probablepostwar conomicdislocations esultant romtheseand other actors ereevidentnd foreseeable.heymighthavebeencontained nd mitigated ya wise and effectivexercise f basiceco-nomic controls ver prices,wages, governmentxpenditures,ank

credit, upplies, tc. The very greatand absolute centralization f

1 See Kei Hoashi,NihonSangyoFukko-EnoMichi (Road to the RehabilitationfJapaneseIndustry), hinso huppansha, okyo, 947, p. I63.

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Japan's conomyn theRoadBack

authorityntheOccupationfJapannd ts ponsorshipfa seriesfadmirableasicreforms ight ave ed onetoexpect qual aptitudein the fieldof economic tabilization.ut theearly eluctancef

SCAP to intervenen this rea, nd the ncompetencefsuccessiveJapanese abinets, roduced n administrativeumbling hich,fanything,ccentuatedhe dislocationsnd impaired ecoveryffortsprovidedn other ields yfactorsuch s food nd rawmaterialm-ports.While tatisticiansttachedoAlliedHeadquartersSCAP) measure

consumerricesymeans f n ndex aving ugust946-March947as a

base, herebyutwardly inimizingrice ncreases,therndices

are availablewhich oint p the rendnmore ealisticashion.heTokyo hamberfCommercend ndustryurveyf egal etail ricesin Tokyo,with1930 as ioo, stood t9,965 nMarch 948. Between heendofthewar nd March948, the ndex adrisen,2I3 points.heChamber'sndexoffree nd black-marketrices n Tokyo,havingNovember945 asa base, tood t 538 tthe ndof he irstuarterfi948. The Bank fJapanurveyfTokyowholesalericesI933 = Ioo)

rose from 84 in I945 to 9,480 in I948. Its survey f Tokyo free ndblack-marketricesSeptember945 = ioo) rose o6ii by the nd ofthefirstuarterf 948. Its ndex fblack-marketrices fproducers'goods August947 = ioo) reached73 inMarch 948.Other ndicescould ecited. he trends clear.2

The causes fthe nflation,hough umerous,reequally pparent.For ight earshere asbeen veryeverehortagef onsumeroods.Forthree earsndustrialroductionasbeenwhollynadequate,m-

ports f industrialaw materialsnsufficient,rice ontrolnefficient,wage controlacking. inally, overnmentxpendituresavecon-sistentlyxceededevenues,esultingn a sharpncreasen BankofJapan otesn circulation.n I945 taxrevenues ere 6 percent fbudgetppropriations;n I946,only i per ent; n 947, 3I per ent;while,n thefiscal ear ndingMarch I, I948,thegovernmenteficitreachedhe stronomicaliguref 29.6 billion en.nMarch945 theJapaneseationalebt utstandingasi5obillion en. ythe ndof

2 For a more extended iscussion ee Fluctuationf Commodityrices,Wagesand Cost ofLivingDuring 947, compiled ytheResearch ection, ffice ftheDirector-General,conomicStabilizationoard,Tokyo, ebruary2, I948, especially . Io.

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March948 itstood t360 billion en, n ncreasef i0 billion ennthree ears.

Overthesameperiod henotes ftheBankof Japan utstanding

rosefrom0.5 billion en o 20.4 billion, espite he ttemptedur-rency eformnMarch 946,which educed hecurrencyncircula-tionby three-quarters.f thetotalnational ebt, heBankofJapanholds 94 billion en,more han ouble hefigure year arlier,hiletheMinistryfFinance, eposit ureau, olds nadditionali billionyen. o greatwas thedifficultyfestimatingovernmentxpendituresin thefaceofconstantlyising rices hat he 948-49 budgetwasadopted n July ,some hreemonthsfterhebeginningfthe iscalyearApril , 1948-March1, i949) towhich tapplied.With hefinalexpenditureigureetat 4I4 billion enfor hegeneralccount nd1,023 billion or he pecial ccounts,he argestn thehistoryfJapan,debatentheDietaswell s wagedemandsfgovernmentorkersn-dicatedhat ven his igure ouldnot ufficend, s in thepastyear,therewouldbe a number fsupplementaryudgetsecessaryo meetmountingiscal equirementseforeheyearwas over.

The laxityf thegovernmentn thedays f surrendernd mme-diatelyhereaftertartedheviciousyclewhichthas, hus ar, eenunable o control.mmediatelyfterhe nnouncementfsurrender,thegovernmentaidout9.9billionyen armarkeds extraordinarymilitaryudget unds, sumgreaterhan nymonthly ilitaryx-penditurehroughouthewaryears.hefollowing onth,nSeptem-ber 945, an additional4 billion enwere isbursednthis ashion.ythe ime CAP found utwhatwashappeningndput nendtothe

practice,rices adrisen 00per ent.Withmanagementisorganizedand abor ree oasserttselfor he irstime ntenyears,emands orincreased ages o meet he oaring ost f ivingwere resentedndgranted. he trendmay, erhaps,etracedestn the aseofgovern-mentmployees,nwhose asewage tabilizationasattempted.

After hecurrencyeformn early 946,a systemf officialom-modity rices or hepostwar eriodwasestablishednd,based n iv-ingcosts nder hese rices, monthlyageof500yenwassetforgovernmentmployees.vertheensuing earwagesofprivate m-ployeesose teadilynder hepressurefmountingiving osts ndincreasednionization.n July 947 thegovernmentas forced orecognizehefactsndto set newwage evel nd a new series fmaximumommodityrices. he basicmonthlyayofgovernment

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Japan's conomynthe RoadBack

employeesasfixedt i8ooyen. rice eilings ere etbymultiplyingby 65 theprice veragesor heperiod 934 to i936; recommendedwageswere o be approximately0 times hepay evel n thebase

period. he reason or ettinghepay evel t 30 times,s contrastedwith 5 times or ommodityrices, asofficiallyxplainedy he co-nomic tabilizationoard s follows:The averageer apita utputfan ndustrialorkerodays at onehalf ronethird f he verage ortheperiod electeds the tandard.t is thereforeonsistenthat om-modityriceshould e raised t double he ate f ncreasenpay."

At the ime he 8oo-yen onthlyay tandardor overnmentm-ployeeswas set, heBureau f Statisticsurveyf workers'verage

wages ndicated figuref ,847yen, r47 yenn excess fthegovern-ment's igure. yOctober947this ad riseno ,470 yen,whereuponthegovernmentorkers emanded n increase,iting Workers'Household udget urvey f the TokyoMetropolitanovernmentwhichhowedctual ouseholdxpendituresofanaverageouseholdof4.4 persons) t 6,1I3yen nOctober947.Bythe pringfI948,when hegovernmentinallyrantedllgovernmentorkers2,920-

yen tandard onthly age, fter threatenedtrikef llgovernmentemployeesadbeen vertednly ythe nterventionfSCAP,work-ers ndmanagementn the lectricowerndustrygreed na 5,358-yen ermonth tandard age, heAll-Japanxpress ompanyaisedwages o4,854 enpermonth,nd coaloperatorsffered iners, howeredemanding ore, ,785 enpermonth. s a result overnmentworkers eregranted furtherncreaseo3,730 enpermonth utthis aisewas lreadyutdated hen iven,ndgovernmentmployees

(as ofJuly,948)are

demanding5,200-yenveragemonthly age.Thegovernmentnnouncedhat twould aise ailway assengerates255 per ent, reightates50per ent,ommunicationsharges00percent,lectricalates70 per ent,oalprices50 per ent ndallotherprices y ooper ent, ttemptingo tabilizehemt 30timeshe re-warbase evel. o dothis twasheld hatwage ontrol asnecessaryand t is understoodhatwages reto bestabilizedna slidingcalelinkedothe ost f iving. CAP,which reviouslyadopposed age

control,asreluctantlyoncedingtsnecessity.

THE consequencesfthisnflationarypiral n allphases fthe con-omy realmostoonumerouso recount. armersavegained ppre-ciablyndaretoday etterffhan tanyperiodince he irst orld

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War.3While heMinistryfFinance urveyf nationalncome is-tributionn Japan or 944 showed gricultureeceivingi5 per entshare fthe ncome istribution,he urveyftheEconomictabiliza-

tionBoard or 947 indicatedhat gricultureeceivedlightly orethan 0 percent, tsgaincomingargelyt theexpensef manufac-turing nd transportation.urthermore,t is estimatedhatwhereasfarm illages ad an estimated billionyendebt n i93i, their e-positstthe eginningf 948 totaled0 billion en nd, fdomestically-hoarded ash s added, 0 billion.4 hileurban nhabitantsavefre-quentlyeenhungryndundernourisheduringhepast hree ears,

farmersave een eporteds channelingome million okui koku= i8o liters) f riceperyear o theblackmarket. o induce armersto sellall of their ice o thegovernment,ndto eliminateheprac-tice funder-reportingultivatedand,5 hegovernmentn September1947 nstitutedcommodityounty-awardystem. rban nhabitantshad longbeenbarteringlothingnd householdoods or icefromthefarmers,ince he atterefusedopartwith heir rops or apidlydepreciatingen.Now thegovernmentassimply ollowinghe ead

of theurban esidents;or very yo 72 liters) fdeliveryuotaful-filled,ne of thefollowingommoditiesasreleasedo the armernthe ndicateduantity:ertilizer,kan 7.5kg.); textilesnd cloth-ing, points; alt, .5 kg.;sake, go .72 liters); igarettes,; sugar,0.25 kini50 gr.). Under he ration ystemarmers ight btainwork-gloves,ootwear,ork-clothes,ottonloth, tc.for hepointsthey ccumulated.he reactionf farmers asinteresting.n Yama-gataPrefecture,he ravingorgoods edto deliveriesfevenwater-

logged ice.nAomori refecture,here ere emandsor evisionftheplanbecausehigh-pointommoditiesuch as work-clothes,i-cycles,tc.werebeyondhereach fthe smallfarmer.n bumper-cropNiigata refecture,t s said hat akewas nsuch versupplyhat

3 See Changes n the RuralEconomyDuringthe War and Post-War eriods, nvestigationDivision,Hypothec ank,Tokyo,December 947.

4 BunzaburoUyeda, "Agriculturend Protectionism",oyo Keizai Shimpo,January 7,3948, p. 33.

5The Oriental conomist eported:Whereas ultivated addy-land rea as of I94i aggre-gated ,i80,000 chobu,he rea n I947 had diminishedy I per ent o 2,830,000 chobu.This decreasewas looked upon by theMinistryf Agriculturend Forestrys theresult ffalsified eports yfarmers,nd theministerialurveyt theendof 1947 covering omori nd37 otherprefecturesas brought o light63,0oo chobu of unreportediceland.A nationwideinvestigationhould ncrease he creage onsiderably."pril 0, 1948, p. 303.

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Japan's conomy n the RoadBack

black-marketersere ttractedy thedrinks vailable atherhan ythe ice.

In addition,hegovernmentetpurchase rices or eliveriesn ex-

cessofquotas t 300percent fthequotapurchase rices orrice,wheat, weet otatoes,tc., espitetscontentionhat ll staples ro-ducedhadtobe deliveredo t.Furthermore,hebasic andreformasbeen progressing,o thebenefit f tenant armers.6y July948,farmlandcquired otaled .75 millionhoof the millionhogoal(i cho=2.45 acres),while aleswere .2 millionho.It s SCAP's on-tentionhat hese nd othermeasures,uch s crop nsurance,avestrengthenedhe government'sontrol ver he rural conomy,ndfiguresn rice eliveriesnder he uota ystem,ssued y heMinistryofAgriculturend Forestry,ppear obear his ut.'

Oneeconomicournal, owever,tated luntly:theheavy low fblack-marketicegives he ietothefigures".8nd theblack-marketprice frice n Tokyo,tthe nd f he irstuarterf 948,washigherthan verbeforet 130.49 yenperkilogram,omparedotheofficialprice f 14.96 en erkilogramnd a black-marketrice year arlier

of only 0.27 yen.9 t all events,fterwoyears fbumperrops,n1946 nd1947, theJapanesearmeras n an enviableositionn con-trast o other conomicegmentsfthepopulation.

IT ishardly ossible o generalizewith qual certaintybouttheover-allpositionf abor nder he nflation.o be sure,n thebroad ieldof ocial olicy,abor n Japannder heOccupationasbeen ranteda new and unheard-ofreedom. fter artime1938-45) suppression

ofunions nd compulsoryrganizationfworkersnto wo patriotic"6 See Economic ituation uring1947, MitsubishiconomicResearchnstitute, onthly ir-

cularNo. 2i8, Tokyo,January948, p. i6.

7 QUOTA RICE DELIVERIES

(in 0oookoku)Year Delivery uota Deliveriesompleted

1947 Rice 30,550 March 6, 1948

1946 Rice 28,o63 May 10, 1947

1945 Rice 26,56I Only 0% delivered1944 Rice 37,250 September0, 1945

See "OutlookforJapanese griculture",reliminarytudyNo. 25, NaturalResourcesection,SCAP-GHQ,Tokyo,May 6, I948.

8 Toyo KeizaiShimpo,March 0, 1948, p. 222.

9Consumer rice Survey, esearchnd Statistics ivision, CAP-GHQ, Tokyo,April, 948.

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labor ronts,10n thewords fone uthority,. repressiveeasuresof theJapaneseovernmentad effectivelyestroyedvery estigeffreedomf organizationnd self-expressionnthepart f abor....

Theywere ffectivelyenied herightsfassembly,peech,nioniza-tion, rotest,ollectiveargainingndstrike. ll pre-warabor eadershad beenkilled,mprisoned,xiled r ilenced...." 1

Thepeakof unionmembershipn Japannthe 930s wasreachedin I936 when unionrollstotaled 20,589.12 y wayofcontrast,n thethreeyearsof theOccupation, nionmembershipas risento morethan 6,ooo,ooo. varietyf progressiveabormeasures,uch as work-men's compensation,nemploymentnsurance, system f nationalemploymentffices,he right o unionrecognitionnd collective ar-gaining, ompulsoryafetymeasures,imitationf hours f work, ro-hibition f employmentfwomen ndangerousobs, tricturesgainstchild abor, tc.,have beenplaced on the statute ooks.Never beforehas thevoiceof aborbeenso strongn Japan s it s today.

Butthe nflationas distractedheunions nto xpendingheir ner-giesin attemptingo keepwages rising s fast s prices. ince official

pricecontrolhas thus farbeen merely delaying ction,withnewmaximum rices et periodicallyythe governmento catchup withrisingprice ndices, his pressure orwage increases as been a con-tinuous ne andhas in turnpreventedny effectiverice tabilization.A vicious yclehasdeveloped,s it usually oes n anycountryrippedby inflation, ithrising ivingcostsnecessitating age increases,ndthese n turn esultingn furtherrice ncreases. epending nwhichindicesofprices nd ofwagesone selects,t can be proved hatreal

wageshave risen rthat hey ave fallen ver hepastthreeyears. orexample, he OrientalEconomistdeclared, The real wage scale ofmarriedworkerss being teadilymproved arallelwiththeprogressof inflation,"113iting ts own wage index,withDecember 946 as a

10 See SenjiRodo Kanri (Wartime abor Management),writtennd published y Dai Nip-ponSangyoHokokuKai,Tokyo, ebruary943.

11Final Report f theAdvisory ommitteen Labor n Japan, CAP-GHQ, Tokyo,July 9,

1946, pp. 4-6.12 See I. Kataura,"Historyof the Labor Movement n Japan",Rodo Mondai Kenkyu,

Tokyo,October , 1946.13 March27, 1948, p. 246. On the otherhand,see "Wage Rise Not ResponsibleorPrice

Increase",TokyoMimpo,May 28, 1948, and "Wage Base and Wage Policy",Nihon Keizai,

July , 1948.

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Japan's cononmyn theRoad Back

base, omparedo theCabinet ureau f Statisticsonsumerricen-dex, n the amebase.By the nd of April 948 thewage ndexwassome 0 points head f theprice ndex.As theOriehtalconomistt-

selfnoted, owever,thetablewas preparedn theassumptionhatprices nd wages tood n the ame evels n December946". And tswage ndexwas based argely n factory orkers, hosewageshaverisenmost apidly.ommercial,rofessional,overnmentnddomesticworkers,nthe ther and, ave aredesswell. orexample,etweenthebeginningf 946 and the ndofthefirstuarterf 948, govern-ment orkers' ages adrisen80per ent. rices ver he ame eriod,

asmeasuredytheBank fJapanndex fretail ricesnTokyo, adrisen70per ent.

I NDUSTRIAL ctivity14as been he hief ictim fthe nflation.his snot to imply hat he imited evival f industrialctivityas beencheckedy nflationlone. nadequateupplies f mportedndustrialraw materials avebeenanothermajor imitingactor. ut thedis-tortionf therelationshipetweenosts, fficialelling rices, ork-

ing capital, tc., as been severelyislocatingactor, aking rofitsuncertainnd thereforeinderingutput. or example,n coalmin-

14 Legitimateusiness, hat s, apartfrom hedealings f thenarikin nd oyabun new yenmillionairesnd laborcontractors).mmediatelyfterurrender,arge tocks f militarylothingand food,war plantmaterials,tc. disappeared.n thewordsof an editorialn TokyoMimpo(March i8, 1948): "It is a well knownfact hat hegreatbulk of armymaterials,llegally p-propriatedy professionalrmypersonnel,ureaucrats,apitalistsnd political arty osses ndthen hannelednto the handsof black market rokers,aveconstitutedhefundamentalactor

for thecurrent ampantnflation.he so-calledSeko' Case,the Osaka ArmyArsenalCase,andother candalous ncidents ccurringt variouswar plants re enoughto make us shudder tthe political mplicationsf these ases.The tremendouscale on whichthese llegaldisposalsweremade is unbelievable." steady eriesof hoardshave come to light.For example, OnMarch6 itwas announced hat nvestigationsytheTokyoDistrict rocurator'sfficend localofficialsf plants elongingo theformer akajimaAircraft o., scatteredn some 260 places nGumma,Saitamaand TochigiPrefectures,ad disclosed ,ooo,ooo,ooo yenworth fgoods, n-cludingmachinerynd parts, teelproducts,arts or ircraft,uraluminum,extiles,aper, il,and other ssentialmaterials."Also: "Hidden and hoardedgoodsvalued at morethan ,ooo,-

ooo,oooyenwereunearthed y a special nvestigationeam composed f officialsf theYoko-hamaDistrict rocurator'sffice hichmade simultaneousaidsuponmore han 4 warehouses

in Yokohamaand Sagami. Includedamongthe goods exposedwere29,297 cases of Japanesemilitarylothingmaterials, 85 casesof militaryniformsnd i2,755 cases of foodand othermaterials." ee Summation f Non-Military ctivitiesn Japan, CAP-GHQ, No. 30, Tokyo,March 948, p. 35.

Testimonyn theSekine,Nishio, nd Tsuji casesappears o tiethenarikinnd oyabunveryclosely o thefinancingfpolitical artiesn contemporaryapan.

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ing, n ndustryowhich oth heJapaneseovernmentnd heOccu-pation avepaid particularttentionecausehey onsideredt to bethekey o the evivalfmany therndustries,surveyndicatedhat

productionosts ermetricon fcoalwere ,457yen nmid-1947ndI,617 en t the ndof 947.Yetall duringhis eriodhe fficialrice

ofcoalwas956yen ermetricon. his eiling adbeen ased npro-duction ostsn April nd May 947and,bythe ime f ts doptionandpromulgationnJuly947,wasalreadyutdated.nJuly948 helegalprice adtoberaisedo2,388 en. hedeficitf he oal ndustryinI947 otaled3 billion en,which adtobe met ygovernmentub-sidy ndReconstructioninance ank oans. uch disparityot nlydiscouragesroductionutgeneratesblackmarket,ince producerissorelyemptedosell tan extralegalrice. xamplesould emul-tiplied.

In hides nd eatherhe ost rice or urchasingnd tanningnehideamountednthespring fI948to2,700yen, esultingn a deficitof some6oo yenwhen the leatherwas sold at the official rice. nthe case of a 3,75o-ton steamerplyingbetween Muroran and Keihin

(Tokyo-Yokohamarea), carrying,150 tonsof coal and operatingi8 daysa month r 9 months year, xpensesmounted o I,021,170

yen per annum, including all charges. On the basis of a 3,I50-ton

cargo,theper-ton ransportationostreaches 24 yen,or 2.I9 timesthecurrentfficialllowable ransportationharge f I48 yen.

Constantly isingcosts and peggedofficial riceshave made theworking-capitalosition f most orporationsotally nadequate.As aresult heyhave been forced o borrowncreasingly.overnmente-

strictionsn theactivitiesfthecommercialanks, nd their wnun-balancedfinancialtructure,ave made t mpossibleor hem ograntthenecessaryoans.As a result orporationsave beenforced o fallback on thegovernment'seconstructioninanceBank, despite heBank's reluctance o make working-capitaloans and its preferencefor quipmentoans.Because ftheheavydemands n itsresources,thas notonlyhad to increasetscapitalizationeveral imes uthas hadto borrowheavily rom heonly vailable ource-theBankofJapan.Sinceever-increasingostsprevent irms rom epayingheirdebts otheReconstructioninanceBank,the RFB loans from heBank ofJapan emain utstanding.onsequentlynflationaryosts ausework-ing-capitaloanstobe monetized ythe Bank ofJapan,ndmore nd

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moremoneys therebyrawnnto irculationndnever etired.husinflationegetsnflation.

Even n the quipmentield,hefantasticosts omparedoprewar

levels,heconsequentnadequateapital esourcesfcorporationsomeet hese osts,nd the bsencefa capital new securities) arketin which o borrow,ring ndustryo theRFB and t nturn o theBank fJapan. n example rtwomust uffice.eforehewar cottonspindle ouldbe installedor 0or6o yen. oday he onstructionostamountso7,000yen t officialrices nd considerablyxceeds5,000yen t theblack-marketrice. eforehewar he ost oNippon uisan(Japan ishery o.) ofconstructingfishingoatwas2,000 en;nowithas oared o70,000yen. bviously,ost orporations,ith re-infla-tion apital esources,annotinancehe urchasefnew rthe eplace-ment fold equipmentutoftheir esources.espitenflatedom-modity rices nd costs, orporatealance heets dhere,s theymustuntil capitalmarkets establishedr the ompanys reorganized,othe ld valuationsndthus ive ise o anomalies.orexample,o-percent ividendsn old capitalizationsould oday e worth nly bout

a cigaretteer hare.DWELLING upon the imitationsngendered y the nflation aypos-sibly resentoo omber view fthe ourse f Japan's ostwarcon-omy.Whathasbeen he rendf ndustrialctivitynder heOccupa-tion?On anover-allasis, roductionn Japan ythe ndof thefirstquarterf 948hadriseno49per ent f he 930-34evel.Mining as103per ent fbase-periodutput, hereasmanufacturingasonly 0

per ent.Measuringnd nterpretinghysicalutput rom he 930-34baseperiod, owever,nvolvewo eriousimitations.n the aseperiodthepopulationf Japan roper as 66 million. oday t s 8o million.While one of the objectivesfthe Occupations to regain or heJapaneseeople he tandardf iving revailingnthe 930-34 eriod,thismust, f course,meanmore hancomparable hysical utput.Merelyo achieve he 930-34evelofoutputwouldnotrestoreheJapaneseotheirevelof ivingn thatperiod, ince n a per-capita

basistheywouldbe producingndconsumingess.Secondly,om-paring urrent ithbase-periodutputgnoresherelativever-ndunderdevelopmentf specificndustriesndgives n erroneousm-pressionf therelativeecoveryncertainields. or example,nthe

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accompanyingable"thecolumnwhich ompares948 monthlyut-putwith930-34 productionives he mpressionf onsiderablyetterrecoveryn iron nd steel han n textiles. owever, ythe ndof he

baseperiod, he extilendustryad about eached hepeakof ts x-pansion n the Japaneseconomy, hereas heemphasis f theJap-aneseplannersn the 93os,particularlyn the asthalf fthedecade,had beenon expansionf theheavyndustries,16o that hepeakofiron nd steel utput as notreached ntil he arly940s. Therefore,a more ealistic iewof theextent f ndustrialecoveryn Japan sachieved y comparing948 outputwith hepeaks chievedn eachfield.When his s done see ast olumn ftable), t s apparenthat

therevivaln ron nd steel asbeen s limiteds in textiles.It is also clear hat hefield n which oth CAP and theJapanesegovernmentaveexertedhegreatestffortso nduce ecovery-coalmining-has egun o respond otreatment.arioustimulants,uchas subsidies,igherwages, etterations,ncreasedllocationsf es-sentialmaterials,tc.,havebeen dministered. goalof30 million

15 KEY PRODUCTION TRENDS IN JAPAN, 1930-1948

(MonthlyAverages) 19481948 as% of

1930-34 1948 as % of PeakItem average Peak 1945 1947 is/Qtr. 1930-34 Year

Coal (iooo metric ons) 2,597 4,777('40) 4,111 2,270 2,825 io8 59

Pig iron iooo metrictons) 104 353('41) 42 30 39 37 II

Crude teel iooometricons) 227 652('43) 89 78 97 43 14

Raw silk balesof

132 lbs.) 59,840 62,838('34) 7,768 9,292 8,572 14 13Cotton yarn(Iooo lbs.) 96,497 132,207('37) 4,933 22,434 2i,803 21 I6

Rayon yarn & staple

(I0ooo lbs.) 6,888 44,986('39) 2,293 2,967 3,89i 56 8

Ammoniumulphate(metric ons) 34,733 103,500('41) 20,250 60,o82 58,103 167 56

Electric ower&(millionsfkwh.) 1,308 2,857('44) 2,715 2,468 2,299 175 8o

Cement (I000 metrictons) 308 500('40) 98 103 107 34 21

Crudeoil (kiloliters) 2I,645 32,049(Q37) 19,947 16,82I 15,193 70 47

aData for 930-44 representutput f all utilities, hile aterdata represent5 percentof all public tility eneration.

Source:JapaneseEconomicStatistics, ulletin o. 20, April 948, Researchnd StatisticsDivision, CAP-GHQ, Tokyo.

16 See "The DomesticConversion o Heavy Industryn Recent Years", Kokunai KeizaiShiryo, No. 31, Research ureau, oreignMinistry,okyo, 945.

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Japan's conomyntheRoadBack

metriconswasset, nd almost chieved, or 947-48. A newgoal of36millionhasbeen setfor 948-49.This compareswith verage nnualoutput f33.9 millionmetric ons nthe1930-34 period nd withpeakoutput f57.3millionmetric ons n I940. The

impactf an

inadequatecoal supplyupon theeconomys far-reaching.he coal shortage asmadepoweroutputessthan tmight therwiseavebeen.Thispowershortage n turnhas restrictedmmonium-sulphateroduction.husthegovernmentas notbeenable to provide he farmers ith all ofthefertilizerheyrequire; ackingan exchange f rice forfertilizer,farmers ave diverted heir iceto other hannels.Thus officialicerations avebeenboth ate and inadequate. oal miners onsequently

exert esseffort.maller oal outputimits ransportation.his causescoal to accumulate t the mines nd shipping oints. teelproductionis thuserraticnd uncertain. he consequentnadequate eplacementofrails nd equipmentauses furthereteriorationftransportation.Such sbuta smallpart fthecirclewhichmustbebroken omewheretoachieve ecovery.

Alongwithpeak productionf57.3millionmetric onsof coal inI940, Japanmportedn additionalo million ons,mostly igh-grade

cokingcoal whichherdomestic esourceso notprovide.nabilityoobtain hishigh-gradeoking oal from hetraditionalource,NorthChina,has greatlympeded teelproductionn Japan nd has led tosuchweird nd distortedconomic rrangementss thesigning,arlyin I948, of a contract etween heJapanese oardofTrade and anAmerican mport-exportirm, aras & Co., wherebyhe latter s toprovideJapanwithhigh-grade .S. coking oal in return or aterde-liveryfrolled teel heets y theBoardofTrade.ThisdespiteJapan'sgreatneedfor teel!As theOriental conomist as noted:"Actually,Japan's ron nd steel ndustrys in a deplorable onditionnd itwillbe sometimeyetbefore he evelpermittedytheFEC [Far EasternCommission] an be reached."'7Recoveryn ironand steeloutput(see footnote5) hasprogressedoonly 0 percent fthe 930-40 level,or to a mere 2V per ent fthepre-surrendereak.

Just s therevival fcoal outputhasbeenregardeds thekeyto in-dustrial

ecovery ithinJapan, o therebuilding fthetextile radeshasbeenheldto be thekeytothenecessaryeestablishmentfJapan'sforeignrade.The results avebeenaboutas successfuls inironand

17 February , 1948, p. 90. See also "Outlookon Production nd Prices",AsahiShimbun,Tokyo,May25, I948.

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PacificAfairs

steel.Rawsilk, heoreticallyapan's est xportince tsoutputs inno waydependentpon mported aterials,lumped adly n I947butrecovereduring hefirst alf f 1948.The total f I7 million

pounds fcocoons roducedn I947 by8i9,850 familiesngagednsericultureas 2 million oundsess han he rop roducedy 63,-225 farm amiliesn I946. Total xportsell rom6,427bales n 946

to 12,035 in 947, but ecoveredo53,674 ales n the irst alf f1948.While n 946 theUnited tatesook 4,475 ales,n 947 itboughtnly4,094 bales."8apaned heworld s a producerfrayonincludingothrayon arn ndrayon taple iber)n the hree ears936-38,with ro-ductioneachingpeak f 4I million oundsn1938, r 0 per ent f

world utput.n 1947 combinedroductionf yarn nd staple ibertotaled nly 5.6million ounds, r 6 per ent fthe 938 peak.War-time eductionfcapacity,resentbsoletequipmentndtechniques,and ack f mportsfhigh-gradeulp, llhave reventedeal ecoveryinthis ield,houghutput uringhe irstalf f1948was lightlyet-ter han he 947 rate. hecottonndustry,hough holly ependentuponan importedaw material,asshown betterecoveryecord,largelyecausefU.S. measuresoprovidehe equiredaw otton.he

rate fproductionf otton arnnthefirstuarterf1948was 6percent fthe 937 peak; utputf ottonabricsas t 5 per ent f heI937 peak.While here ere irtuallyoexportsf ottonarnnearlyI948, exportsfcotton abricsere rogressingtthe ate f7 per entofthe 935 peak, r I per ent f he 930-34 average.ottonpindles,which adreached3.8 milliontthepeak n the 930S andhadbeenreducedo .3 million y eptember945, totalpproximatelymilliontoday. bviouslyheresstill longway o

goonthe oadbackn the

textile ield.On anover-allasis,extilesonstituted7 per ent f he otal alue

ofJapanesexportsn 947 comparedo45 per entn 936. Themer-chandiserade fJapan uring947 amountedoapproximately526,-ooo,ooof mportsnd I73,567,000 of xports,esultingn an over-alltrade eficitfapproximately352,388,ooo.19fthe 7 per entwhich

18

Japanese conomicStatistics, esearch nd Statistics ivision, CAP-GHQ, Tokyo, Bul-letinNo. 20, April1948, pp. 33, 52.

19Summation f Non-Military ctivitiesn Japan, CAP-GHQ, Tokyo,No. 29, February1948, pp. 201-07. Speakingbefore heDiet on January8, Commerce nd IndustryMinisterMizutani nnounced differentet offoreign-tradeiguresor 947. He placed exports t $270

million, mports t $440 million nd thedeficitt $I70 million.He also placed textile xportsat 55 percentof total 947 Japanese xports. ee Mainichi, okyo,January9, I948.

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Japan'sEconomyon theRoad Back

textiles onstitutedf the totalvalue of exports,ottonfabric lonerepresented9 percent and cottonyarn n additionalo percent. fthedeficitn Japan's radebalance s to be eliminated,hetheoryhatexports an be builtup sufficientlyia textiles,articularlyotton, illhave to be reconsidered,ince n the I930s exports fmanufacturedcotton roducts ielded ittle urplus verand above thecostsoftheimported awcotton.20ilkandrayon, articularlyilk, remuchmoreeffectiven thisrespect. he purchase yJapan fthe bulk of its rawcotton rom heUnitedStateswith heconsequent ecessityor ellingthemanufacturedottonproducts nlyfordollars, n a worlddes-peratelyhort fdollars,norder opayfor herawcotton, asalready

tiedJapan's rade n knots nd builtup a largeunexportableurplusofcotton oods.The Oriental conomist oted arly hisyear:

[Japan] s unable oexportommodities anufacturedrom awma-terials urchasedromheUnited tates oconsumersntheFarEastarea.Thedisqualifiedxport oodswhich ave omeupfor iscussiony heDietare nrealityccumulatedtock nsuited or ale n theUnited tates ecause f n-ferior uality nd unshippableo Asiatic onsumersecause heyackdollarfunds. his mpasse as given ise othebrightdea ofvendingffhese ottonpiecegoods n thedomestic arket omeet hebudget eficitut talso castsa shadow nthe uturefourforeignrade."21

EitherJapanmust btainmost fherrawcottonmore heaply romIndiaand China or shemust ehelped orebuild errayon atherhanhercottonndustry,herebyessening erdependence nUnited tatesimports,orwhichshe cannot onceivablyaywithgoods ordollars.In I947 approximately2 per centof theestimated alueof importswas accounted orby mportsrom heUnitedStates rby those ro-

curedbyUnitedStatesgovernmentgencies.22mports romAsiatic20 See The Place of ForeignTrade in theJapanese conomy,UnitedStatesDepartmentf

State, ntelligence esearchReport,OIR 28i5, Washington, ugust 9, I946.21 Februaryi, I948, pp. I3I-32. Whilethis urplus otton loth, ariouslyeportedt 300-

400 million quareyards, as accumulated, .S. Army urplus-clothinghipmentsfhats, aps,shirts, rousers,nderwear,work-clothes,tc.,have beenmade. (See Summation, o. 30, p.237.) Recentlyon June 4, 1948) i00,000,000 yards f surplus apaneseotton oodswere sold to theBritish oardofTradeto be finishedn Britishmillsforre-exportoCommon-wealth nd British olonialconsumers.aymentwill be in British ounds.Whentheeconomicimplicationsf a transactionuchas this re seenbyAmerican usinessmen,here s no doubtthattheir rotestso Congresswill be sharp, ince t involves ossofexportmarkets,ecline nAmericanmill production,nd subsidizationf British xports ased on an advanceof rawcotton ytheU.S. totheJapanese.

22 UnitedStatesagenciessuppliedapproximately483,5I9,000 worthof imports ut re-ceivedonly about $20,000,000 worth f exports,making negative alance of approximately$463,429,ooo. For a Japanese ommentary,ee IchiroYoshida, "Economic ndependencend

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Pacific fairs

countriesccountedor nly per ent f he otal ndfromurope ora little ess than2 per cent. n contrast,n I936 imports romAsiaticcountriesotaled 9 percent nd from heUnited tates nly 0 percent

of total Japanese mports. f total1947 imports,oodstuffsccountedfor56 per cent, aw cotton or 3.3per cent nd fertilizer aterialsorI2.8 per cent.The greatneed for ood mportsokeeptheurbanpopu-lationfrom tarving as held down mportationf ndustrialawma-terialsneeded for recovery. s an interim olicy,United States ub-sidization f Japanese oreign rade may well be justified,utthreeyearshave already lapsedsincesurrender,nd there s stillno long-term, ealistic lan to tie n Japan's radewiththatof the Far East as

a whole. In I947,66 per cent of Japan's mall export otal wenttoAsiatic ountriesnd only 2per cent o the UnitedStates. ince Asiais the obvious naturalmarketfor her goods, t must also become,perforce,hesource fher mports. he callingofa Far Eastern co-nomicConferencend thearrangementf reciprocalrade greementsbetweenJapan n theonehand and China, ndonesia, hePhilippines,India, and Australia, tc.on the otherwould be a far-reachingtep ntherehabilitationotonly fJapan ut f llAsia as well.23

FROM thisbrief eview f the major aspects f thecourse f the Jap-aneseeconomyver hepast hree earstbecomes pparenthat,whilethe basic cause ofthe nflationhat s vitiating apan's ecoverys thecontinuinghortage f goods,which s being ver o slowlyessened yrising roduction,24hegradual nd as yet light mpact fthisdevelop-

Export",Kogyo,June 8, 1948. In the 930-34 base, and target, eriodthe UnitedStates up-plied 4 per cent fJapan's mports, hileAsiaprovided 9.6 percent.OfJapan's xportsn thisperiod, he UnitedStates ook 3 per cent,whileAsia absorbed 3 percent.

23 For a moreextended iscussion f this pproach othe olution fsome basic Far Easterneconomic roblems,ee Jerome . Cohen, "Japan-Reform s. Recovery",ar Eastern urvey,June 3, 1948, especially . I42. For a Japanese iew,see "Japan'sRecoverynd Its Effect nAsia", Mainichi,April I, I948, and "Trade Board Stresses ormerMarkets", okyo Shimbun,April I, I948.

24 A foretastef what willhappen nJapanwhen upplyn a particular ield quals effectivedemand may be seen in the case of the electric ulbindustry. he number fproducersn thefieldwas reducedfrom 50 in I937 to only6 by September945. Thereafter largenumberof small producers e-enteredhe fielduntilthe totalwas almost 00 in March 948. Monthly.outputroseto I4 millionbulbs I937 total= 332 million) n thespring f I948 and, sinceeffectiveemandwas estimatedt approximately2 millionper month, rices eacted romptly.As the Oriental conomist oted:"Untilquiterecently,he bsolute hortage f bulbsresultednblack-marketrices ar n excess f theofficialeilings. . Butrecentlyomeunmarked eneral-purposebulbs are selling t less thanofficialrices,while n Tokyo high-grade ulbsarebeingsold freelyt theofficialrices.Undersuchcircumstances,eak and minormanufacturersre

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Japan's conomy ntheRoadBack

ment s more han ounterbalancedy arge ontinuingovernmentdeficitsndunsoundmanagementf hemoneyndbankingtructure.Foreign radehas beenalmostwholly nd artificiallyustainedy

Americanubsidy. eitherhe volume f tradegenerated,ortheeconomicelationshipsstablished,ssufficientlydequater asting osustain o,ooo,oooapanesen their oorly-endowedslands. asic olu-tions an come nlywith completentegrationftheJapanesecon-omywiththose f all other ar Easternountries.he longer heUnited tates elays tsrecognitionndsponsorshipfthis conomicrapprochementnAsia, heess uccessfulnd hemore ostly illbe tseffortsn Japanlone.RealeconomicecoveryorJapanwaits pontheformulationf a comprehensivendcoordinatedrogramor herevival fallFar Easternconomies,long he ineswhich heUnitedStatess nowpursuingnEurope. apaneseecoveryannot e achievedin a FarEastern acuum.

NewYork, uly948

bound tobuckleunder; and the ndustrys already xpectingomereadjustmentsnd failures."March7, 1948, p. 248. Seealso OutlooknProductionndPrices",sahi,May 5, 1948.

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Documents

Japan's Economy on the Road Back