Japanese Industrialization and Economic Growth

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Japan achieved sustained growth in per capita income between the 1880s and 1970 through industrialization. Moving along an income growth trajectory through expansion of manufacturing is hardly unique. Indeed Western Europe, Canada, Australia and the United States all attained high levels of income per capita by shifting from agrarian-based production to manufacturing and technologically sophisticated service sector activity. Still, there are four distinctive features of Japan's development through industrialization that merit discussion: The proto-industrial base

Japan's agricultural productivity was high enough to sustain substantial craft (proto-industrial) production in both rural and urban areas of the country prior to industrialization.  
Investment-led growth
Domestic investment in industry and infrastructure was the driving force behind growth in Japanese output. Both private and public sectors invested in infrastructure, national and local governments serving as coordinating agents for infrastructure build-up. * Investment in manufacturing capacity was largely left to the private sector. * Rising domestic savings made increasing capital accumulation possible. * Japanese growth was investment-led, not export-led.

Total factor productivity growth -- achieving more output per unit of input -- was rapid. On the supply side, total factor productivity growth was extremely important. Scale economies -- the reduction in per unit costs due to increased levels of output -- contributed to total factor productivity growth. Scale economies existed due to geographic concentration, to growth of the national economy, and to growth in the output of individual companies. In addition, companies moved down the "learning curve," reducing unit costs as their cumulative output rose and demand for their product soared. The social capacity for importing and adapting foreign technology improved and this contributed to total factor productivity growth: * At the household level, investing in education of children improved social capability. * At the firm level, creating internalized labor markets that bound firms to workers and workers to firms, thereby giving workers a strong incentive to flexibly adapt to new technology, improved social capability. * At the government level, industrial policy that reduced the cost to private firms of securing foreign technology enhanced social capacity. Shifting out of low-productivity agriculture into high productivity manufacturing, mining, and construction contributed to total factor productivity growth. Dualism

Sharply segmented labor and capital markets emerged in Japan after the 1910s. The capital intensive sector enjoying high ratios of capital to labor paid relatively high wages, and the labor intensive sector paid relatively low wages. Dualism contributed to income inequality and therefore to domestic social unrest. After 1945 a series of public policy reforms addressed inequality and erased much of the social bitterness around dualism that ravaged Japan prior to World War II. The remainder of this article will expand on a number of the themes mentioned above. The appendix reviews quantitative evidence concerning these points. The conclusion of the article lists references that provide a wealth of detailed evidence supporting the points above, which this article can only begin to explore. The Legacy of Autarky and the Proto-Industrial Economy: Achievements of Tokugawa Japan (1600-1868) Why Japan?

Given the relatively poor record of countries outside the European cultural area -- few achieving the kind of "catch-up" growth Japan managed between 1880 and 1970 - the question naturally arises: why Japan? After all, when the United States forcibly "opened Japan" in the 1850s and Japan was forced to cede extra-territorial rights to a number of Western nations as had China earlier in the 1840s, many Westerners and Japanese alike thought Japan's prospects seemed dim indeed. Tokugawa...
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