How Japan's Policies Boosted Its Economy in the 1960s

Beginning in the 1980s, American media started to fill up with reports that Japan would overtake the United States and take over the world. The Japanese economy would surpass the US economy as the world’s largest and everything was going to be made in Japan: TVs, cars, robots, supercomputers. Those forecasts appeared everywhere from serious policy analysis to thrillers like Michael Crichton’s novel Rising Sun.

Overestimating Japan’s Economy?

In retrospect, all those forecasts were profoundly wrong. Beginning with the bursting of a massive asset bubble in 1990, the Japanese economy entered a long period of slow and even negative growth. 

And while certain sectors of the economy—such as automobiles and industrial robots—remained competitive, the big fear—Japanese dominance of information technologies—was completely unrealistic. On the contrary, in the 21st century, Japan is in many ways an information technology laggard.

Government Policies in Action

In the 1950s and 1960s, the government doled out loans to license foreign technologies. And Japanese regulatory power pressed foreign companies to share their intellectual property with domestic business partners. If you wanted to gain access to the Japanese market, it helped to have a local business partner. And the Japanese government would block that cooperation unless the foreign partner shared patents and proprietary technologies.

The government subsidized research and development when Japanese companies sought to build on foreign technologies. Moreover, the government protected local markets from foreign competition. It also let Japanese companies collude on prices. 

That allowed Japanese companies to sell at a loss overseas in order to gain market share but still be profitable overall because of inflated prices in Japan. The end goal of each of these policies was to develop internationally competitive industries. And Japanese industry was supposed to eventually outgrow the need for government support.

Strategy Shift in Japanese Electronics

Beginning in the 1960s, MITI—the trade ministry—outlined plans for a shift in Japanese electronics from basic consumer products to high-tech and knowledge-intensive industries: supercomputers, software, aerospace, advanced ceramics, industrial robots, etc. A centerpiece of that strategy was the development of a domestic semiconductor industry. MITI returned to the strategy that it had used with steel in the early 1950s, and transistors in the 1960s.

MITI would subsidize domestic research and development while forcing domestic manufacturers to share knowledge and facilities in order to avoid duplicating efforts. As late as 1972, Japanese manufacturers of integrated circuits were operating in the red and competing in the US market only by selling below cost. But they slowly became competitive. And by the 1980s, Japanese companies were world leaders in market share and in research and development.

That success in integrated circuits boosted Japan’s broader electronics industry. Why? Because it supported a stable domestic supply of components, unlike in the United States, where semiconductor manufacturers faced a boom-bust cycle characterized by shortages and high prices, followed by overproduction, gluts, and bankruptcy.

This article comes directly from content in the video series The Rise of Modern Japan. Watch it now, on Wondrium.

The Politics of the Japanese Economy

So by the mid-1980s, the Japanese economy seemed unstoppable. The country’s economy was expanding, and dominating new markets. It seemed like Japan could lead any market sector it wanted. That economic power contributed to a rethinking of Japan’s political standing. A prominent voice of that rethinking of Japan’s global political ambition was Japanese prime minister Nakasone Yasuhiro—who served from 1982 to 1987.

Nakasone had started out as a political outsider. And he was an iconoclast. While serving in Japan’s parliament during the US occupation, a 32-year-old Nakasone had petitioned that Japan should have its own army. Of course, that would have been in direct contravention of Japan’s new constitution.

Later, during the 1980s, as prime minister, Nakasone became convinced it was time to move beyond the postwar Yoshida Doctrine—to a more nationalistic and expansive vision of Japanese power, a Nakasone Doctrine. Nakasone contended that the Yoshida Doctrine—named after postwar Prime Minister Yoshida Shigeru—had served Japan well during an era of American supremacy. But that era of US supremacy was ending.

Nakasone’s Vision for Japan

Nakasone’s vision was based on his own interpretation of history—and the relationship between technology and political power. During the 19th century, England had applied steam and iron technology to build railroads and steamships, and it created Pax Britannica: a period of British global dominance. 

During the 20th century, the United States had applied its leadership in electric and chemical technology to the automobile, the airplane, and consumer durables, creating a period of Pax Americana. But the coming era would belong to Japan, based on Japanese dominance of the knowledge economy.

And as a world power, Japan would need to increase its military profile. Japan would remain a US ally but as more of an equal partner: ready and willing to confront the Soviet Union in East Asia. Nakasone also advocated for changes in Japanese economic policy. He felt it was inappropriate for Japan, as a global power, to continue to indulge in petty protectionism and overt industrial promotion.

Common Questions about How Japan’s Policies Boosted Its Economy in the 1960s

American media heavily reported that the Japanese economy would overtake the United States and, therefore, everything from cars to TVs to robots to supercomputers would be made in Japan since the country’s economy would take over the world.

To help the Japanese economy in its competition with global markets, the government adopted some policies. Firstly, it doled out loans to license foreign technologies and used its regulatory powers to force foreign companies to share their intellectual property with domestic partners. It also subsidized research and development when Japanese companies wanted to build on foreign technologies and protected the local market from foreign competition.

The success of integrated circuits in the Japanese economy supported a domestic supply of components to the broader electronics industry in Japan reliably, whereas, in the United States, semi-conductor manufacturers couldn’t provide the industry with a steady supply of components.

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