It's a Miracle

The “Asian Dragons” (also called “Asian Tigers,” but I think “Dragons” sound cooler) are four “countries” in Asia that underwent rapid economic growth in the latter half of the 20th century: South Korea, Taiwan, Hong Kong, and Singapore.  However, the rapid economic development these countries experienced was preceded by that of another Asian country: Japan.

Prior to 1868, Japan was a medieval, feudal society ruled by samurai (a “ruling class of warriors“*).  It was very isolated and had a policy of being a “closed country” (this policy was called “sakoku”).

In 1868, Japan changed fundamentally and began to modernize and industrialize.  It adopted a Western-style political system, and relinquished its policy of isolationism.  It began to use its military to conquer other lands.  Eventually, this policy drew the ire of other countries.  It withdrew from the League of Nations and eventually aligned with Nazi Germany.  During World War II, Japan bombed Pearl Harbor in Hawaii, which caused the United States to become involved in the war.  This ended with the US dropping atomic bombs on the Japanese cities of Hiroshima and Nagasaki, after which Japan surrendered.  Japan was subsequently occupied by the United States, during which a liberal and pacifist constitution was written for Japan. Like Germany after WWII, Japan was constitutionally forbidden from maintaining a military that was for any purpose other than defense. This meant that Japan’s government had much more money to “invest” in the economy.

After the United States basically destroyed Japan, it began to invest in it.  There were several reasons the United States invested in Japan. One reason was to “Westernize” it.  The end of WWII marked the beginning of the Cold War, and economic development in Japan would have made it less likely to become communist.  An American-Japanese alliance also gave the United States a foothold in East Asia.  This was particularly useful during the Korean War.  In fact, the Korean War was one of the biggest catalysts in Japanese economic development.

Furthermore, Japan got to start over.  Because its infrastructure was destroyed, new and better infrastructure (such as factories) was built. Since then, Japan has been a heavily export-oriented economy, and it has maintained a trade surplus.  This was bolstered in the 1960′s when Japan began to open up its economy, while maintaing a high degree of protectionism.  Initially, the Japanese were reluctant to embrace free trade with other countries because Japan was, and still is, one of the most “nationalist” countries in the world.  Japan is known for being extremely ethnically homogeneous (approximately 98% of Japan’s population is ethnically Japanese), which is due to the country’s restrictive immigration policies (this also likely contributed to the economic development by providing a highly stable society).

There were fears that opening the country’s economy to foreign trade would result in foreign companies and products dominating the market. However, Japan’s contemporary prime minister, Hayato Ikeda, opened Japan’s economy up anyway, and began to integrate the country internationally, while retaining a large degree of protectionism. Subsequently, Japan experienced an extremely high rate of economic growth.  Yet another factor was Japan’s superior education system, which produced a highly educated and disciplined workforce.  And yet another factor was the relatively low wages Japanese workers received (and the fact that Japanese unions tend to be much more reasonable than their counterparts in other countries).

Even after the 1960′s, Japan’s economic policy was heavily protectionist, and involved economic stimulation by the government and policies meant to protect against economic crises.  It also involved “cooperation” between the Japanese government and the private sector.  Japanese banks made it easy to obtain money (starting with Japan’s central bank, the Bank of Japan, which “over-loaned” money to smaller banks, which then “over-loaned” money to businesses).  This allowed for said businesses to heavily invest in themselves, while being protected, both from economic crisis and from foreign trade, by the government.

While this practice may have allowed Japanese companies, and hence Japan’s economy, to rapidly grow, it wasn’t sustainable.  It formed a “bubble economy,” and, in 1991, Japan’s bubble economy burst, and it has never fully recovered.  In Japan, the past few decades have been referred to as the “lost decades.”  The availability of money protected businesses from poor investments, producing a lot of “dead weight” in the economy.  At some point, Japan’s economy could no longer support these businesses.  Subsequently, the easy-credit practice reversed and credit became difficult to obtain.

Furthermore, in response to the economic crisis, the Japanese government tried to stimulate the economy.  It had a budget surplus in 1991, but this quickly became a large deficit.  Over the years, Japan has accumulated a large amount of debt.  The stimulus has (sort of) accomplished what it was meant to, because it has allowed Japan’s economy to slowly recover (and perhaps avoid a larger economic crisis), but I would argue that this isn’t sustainable either, and a debt crisis is imminent.

*This quotation mark is backwards and it is driving me crazy.  If you know how, please tell me how to fix it.