Which Group Took Control Of Japan In The 1930s

9. The 1930s and War Economic system

(See Handout no.7)

Showa Depression 1930-1932

Japan experienced the deepest economical downturn in modern history during 1930-32. This should non be confused with the cyberbanking crisis of 1927 (previous lecture).

There were 2 causes of this depression.

(i) Internally, the Minsei Party authorities (July 1929-Apr 1931, with prime minister Osachi Hamaguchi, finance minister Junnosuke Inoue, and strange minister Kijuro Shidehara) deliberately adopted a deflationary policy in social club to eliminate weak banks and firms and to set the nation for the return to the prewar gold parity (fixed exchange rate with real appreciation). The policy of deflation and return to gilded was strongly advocated and implemented by finance minister Inoue.
(2) Externally, Black Thursday (Wall Street crash) of October 1929 and the ensuing Great Depression in the globe economy had a astringent negative impact on the Japanese economy.

Its main consequences on the Japanese economy and social club were as follows:

--As before, macroeconomic downturn was felt primarily in falling prices and not and then much in output contraction (estimated existent growth was positive during this menstruation). As prices fell, manufacturers produced even more to maintain earning and continue factories running. But conspicuously, this beliefs would collectively advance the oversupply and the deflation. From 1929 to 1931, WPI vicious about 30%, agricultural prices fell forty%, and textile prices fell near 50%.

The famous photograph of hungry children eating white radish [withal, they do not announced on the verge of starvation to me. I think there were worse situations than this in the globe].

--Effectually 1931, rural impoverishment became astringent. Moreover in 1934, rural communities were hit by famine. Particularly in Tohoku (northeastern) Region of Japan, rural poverty generated many undernourished children and some farmers were forced to sell their daughters for prostitution. This rural disaster caused much acrimony and popular criticism against the government and big businesses.

--Cartelization and rationalization were promoted under authorities guidance. Free market seemed to worsen the depression, so agreements on output restriction were adopted. This practice spread to most all material industries including cotton yarn, rayon, carbide, paper, cement, sugar, steel, beer, coal and so on.

--Military machine and right-fly movements emerged. In economic despair, much blame was placed on party governments and their policies. Fifty-fifty ordinary people, who normally hated militarism, were disappointed with the performance of party governments and became more than sympathetic to the military and nationalists.

In the 1930s, political and intellectual thinking gradually shifted from economic liberalism toward more economic command nether state management. There were many reasons for this, including: (i) influence of Marxism; (ii) apparent success of USSR; (iii) Showa Depression; (iv) the idea that deflation was worsened past excess competition; and (v) disappointment with politicians and political parties. Many considered that the days of the US-manner free market economy were over and from now on, land control and industrial monopoly would strengthen the competitiveness of the national economy.

Some other aim of the military and correct-wing groups was agile military expansion. They criticized "Shidehara Diplomacy" which to them seemed too soft on China. Their primary goal was to "defend Japanese interests in Manchuria and Mongolia [more precisely, eastern office of "Inner" Mongolia]).

Seiyukai versus Minsei Political party

Seiyukai (full name: Rikken Seiyukai) was established in 1900 by the matrimony of a leading politician (Hirobumi Ito) and a former opposition political party who decided to cooperate with the government. Its main policies were (i) fiscal activism with an emphasis on public investment in rural and industrial infrastructure; (ii) acceptance of war machine buildup and expansion; and (three) pleasing a narrow voter base (rural landlords and urban rich). It was a political party supportive of a big authorities allocating public money and subsidies. Seiyukai literally means "political friend society."

Minsei Party (total name: Rikken Minsei To) was originally called Kenseikai (1916-), later merged with some other party to become Minsei Political party in 1927. Its main policies were (i) economic austerity and industrial streamlining (free economic system and small government); (2) render to prewar gilt parity; and (iii) international cooperation and peaceful diplomacy peculiarly with the United states of america. Its back up base consisted of intellectuals and urban population. Minsei means "people's politics."

�@	Minsei Party	Seiyukai
Principal supporters	Intellectuals, urban workers	Big businesses, rural landlords
Economical policy	Small government, free market principle, eliminate inefficient units through macroeconomic austerity	Big authorities, fiscal activism, public investment for industry and rural development
Foreign policy	Cooperate with Usa, oppose military machine invasion of Cathay (protect Japanese interests through diplomacy)	Supporting military machine expansion, cooperate with military, if necessary, to undermine Minsei Political party
Finance minister & economic policy in the 1930s	<Junnosuke Inoue, until Dec. 1931> Intentionally generate deflation Return to prewar golden parity	<Korekiyo Takahashi, Dec. 1931-February. 1936> Stop aureate parity and depreciate yen Financial expansion (afterward, tight budget) Piece of cake money

Japanese voters did not always vote for the same party but often switched their support from 1 party to some other depending on the issue and situation. Smaller "proletariat parties" also emerged with farmers and workers as the back up base.

As noted before, Junnosuke Inoue of Minsei Party (finance minister 1929-31) was deeply committed to the policy of deflation and returning to gold. This policy caused severe low just he never relented or regretted. People became greatly frustrated with his policy. Finally, the regime (2nd Wakatsuki Cabinet) was removed and succeeded by a Seiyukai government (Inukai Chiffonier) in December xiii, 1931.

As soon every bit the new Seiyukai government was sworn in, finance minister Korekiyo Takahashi completely reversed Inoue's policies:

--On the very first day of the new authorities, Takahashi ended the gold standard and the fixed exchange rate, and floated the yen. It immediately depreciated.
--Fiscal expansion financed by government bond problems (called "Spending Policy"). Monetization of fiscal deficit was tried for the first time in Japanese history (BOJ buys up newly-issued government bonds).

--Monetary expansion and low interest rates.

Thanks to this policy turnaround, the Japanese economy began to recover in 1932 and expanded relatively strongly until 1936 (the terminal year of non-wartime economy). Among major countries, Japan was the start to overcome the global low of the 1930s. Fiscal and monetary expansion seemed appropriate. Merely the yen'south large depreciation might be considered as the "beggar-thy-neighbour" policy (i.due east., a cheaper yen was beneficial to Japanese industries but it imposed costs on other countries through real appreciation of their currencies).

For these achievements, Korekiyo Takahashi is called "Japanese Keynes." He adopted Keynesian policies even earlier John Maynard Keynes wrote the famous General Theory in 1936 ! Even today, Takahashi's policy is admired while Inoue's policy is generally criticized as stubborn and misguided. Only this view is sometimes challenged and continues to exist debated. As recently every bit in 2001, Prof. Junji Banno (Chiba University) wrote that Inoue'due south deflation policy was pre-requisite for economic expansion of the mid 1930s, because without it efficiency improvement could not accept been achieved. His article indirectly criticizes the current Koizumi government'due south policy of supporting weak firms and banks without painful restructuring (see the box at the end of lecture eight).

Around 1934 when the Japanese economy was firmly on a path to recovery, Takahashi shifted to a tighter budget (which seemed an appropriate determination). But the regular army and navy demanded more armed forces spending despite fiscal pressure. Takahashi resisted and was assassinated by a armed services group in the February 26 Incident in 1936 (side by side section).

Both Inoue and Takahashi previously served equally a Depository financial institution of Japan governor before becoming a finance minister, but their personalities differed significantly. Inoue was a slim, intellectual graduate from Tokyo University. Takahashi was fat and extremely popular amidst people (his nickname was "Daruma," a round doll). He did non have much education and had a rough life when he was young.

Political terrorism and invasion of Communist china

From 1931 to 1937, Japanese politics was gradually overtaken past the armed forces. Many incidents occurred, each undermining the basis of party government. Within the army and navy (especially the regular army), a few ultra-nationalist groups formed with the purposes of rejecting a political party-based political system, uniting the nation nether the emperor, introducing economical planning, saving the rural poor, and and so on. They staged many coups and assassinations. Below is the brief history of this dismal period. Underlined incidents were particularly pregnant.

1931	March Incident (failed military coup endeavour).
	Manchurian Incident (Sept. 18 Incident)--a few officers of Kantogun (Japanese army stationed in China), including Kanji Ishihara and Seishiro Itagaki, started armed services invasion by exploding a railroad track and blaming information technology on Chinese. Ishihara'due south idea was that Japan had to take Manchuria (Northeastern China) in club to set for a full war confronting the US. They started the incident without informing the Tokyo regime or army headquarters. Foreign minister Shidehara told Kantogun to refrain from farther military action but Ishihara's group ignored the order. The Chinese side adopted non-resistance strategy, and Manchuria was shortly occupied past the Japanese troops. This incident conspicuously showed that the party government could no longer restrain the behavior of the military machine.
	October Incident (failed military insurrection attempt).
1932	Blood Society Incident--Junnosuke Inoue (former finance minister) and Takuma Dan (Mitsui Group) were assassinated.
	Establishment of the land of Manchuria (Japanese puppet state).
	May 15 Incident--navy officers assassinated prime government minister Tsuyoshi Inukai (Seiyukai).
1933	Japan was criticized by the League of Nations over the occupation of Manchuria. In protest, Nihon withdrew from the League of Nations.
The menstruation 1933-35 was relatively "placidity" thanks to economical recovery and fewer domestic and international incidents. Only this proved to exist a temporary at-home before the big tempest.
1936	Feb 26 Incident--nationalistic regular army officers led their troops to phase a military coup on a snowy forenoon in Tokyo. They wanted to get rid of the current government and beginning a new regime. Korekiyo Takahashi (finance minister), Makoto Saito (interior minister) and Jotaro Watanabe (teaching government minister) were assassinated. The coup group occupied central Tokyo for four days. The regular army headquarters first approved their action but afterward disowned them, considering Emperor Showa angrily told the military to put down the rebellion. The coup thus failed, but afterward this incident the party authorities was marginalized and the military machine controlled Japanese politics.
During all these incidents, Seiyukai behaved opportunistically, ofttimes supporting the military in club to politically attack its rival, Minsei Party. Information technology was a risky tactic since the goal of the military was to remove all political parties including Seiyukai ! (Past contrast, Minsei Party more consistently opposed the military.) Political parties were seriously discredited in the eyes of the public due to (i) inability to oppose the military, (ii) money politics and corruption, and (iii) Seiyukai's self-destructive move to cooperate with the military.
1937	Japan-Cathay War began--on July 7, Japanese and Chinese troops had a skirmish at Marco Polo Bridge near Beijing (Beiping). The incident was small-scale merely Tokyo (Konoe Cabinet) decided to send more troops to China. Thus began a total-scale war with China (until 1945).

After the Japan-China war erupted, political parties were emasculated and later disbanded, the military completely took over Japanese politics, and the entire nation was mobilized to execute the war.

In my view, Japan crossed the point of no render with the Manchurian invasion in 1931. With this incident, Shidehara Affairs concluded and the military's influence surged. International isolation became unavoidable. Party governments were too weak to stop this trend. While some factions within Seiyukai and Minsei Political party tried a few times to merge the two parties to oppose militarism, their attempt did not materialize. Starting with the Manchurian Incident, the menses 1931-1945 is sometimes called the "Fifteen-Year State of war."

	The caput office of the South Manchuria Railway controlled by Japan (left) and its affiche (below).

The poster says "Open up upward the fertile land of Manchuria: Young Volunteer Army for Cultivating Manchuria and Mongolia"

War economic system, 1937-1945

The military leaders thought (hoped) the war with China would be short. Simply in reality, it lasted for viii years. Without realistic vision or planning, the war front end expanded and fighting escalated. Within China, the nationalists and the communists were fighting each other at first but after joined forces to fight the Japanese.

While there were before calls for economic planning before the war, the Japanese economic system basically remained market-oriented until 1936. But with the outbreak of the Japan-Communist china State of war in 1937, the economy was completely transformed for war execution. I by i, new measures were introduced to control and mobilize people, enterprises and resources. Most Japanese firms remained privately-endemic just were heavily regulated to contribute to the war endeavour.

Fundamental measures for establishing the state of war economic system included the post-obit:

1937--The Planning Board (kikakuin) was created. This board, direct under the prime number minister, was responsible for comprehensive policy blueprint for wartime national resource mobilization. The brightest bureaucrats from various ministries were gathered for this purpose. It basically played the aforementioned function as the land planning committee in socialist countries.
1938--The Planning Board issued the Resource Mobilization Plan (commencement economic program). Separately, the National Mobilization Constabulary was approved.

1940--Konoe Cabinet'south New Government Motion. This movement was started in response to Japanese invasion of Southeast Asia and German victories in Europe. A potent 1-political party system was advocated and adopted. Existing political parties were dismantled.

1943--The Armed forces Needs Visitor Act was adopted. Designated companies were placed under official command (top management, production programme, penalization for not-compliance, etc) but at the same time they were provided with necessary inputs on a priority ground.

In improver, rationing, forced enterprise mergers, and forced factory labor were adopted in increasing intensity.

For economic planners, the master objective was to maximize military product under limited domestic resources and availability of imports. Key armed services products were ships and warplanes. Toward the stop of the war, aeroplane production became the only priority. In order to heave heavy industries, consumption was profoundly squeezed and calorie-free industries were suppressed. The textile industry (previously the leading industry of Japan) was virtually eliminated. The people were forced to live without a new supply of wearing apparel and footwear. Steel products in structures and households were stripped as the metal source for building more airplanes and ships.

RED (December.1941): Japan'southward occupied areas immediately later on the Pacific War started. YELLOW (Aug.1942): Japan's maximum military expansion. After this, Japan began to retreat.

In wartime planning, two variables were crucial: (i) foreign exchange reserves; and (ii) energy and raw materials (and the capability to transport them by bounding main). Until around 1940, the question was how to maximize military output subject to these two constraints. Only subsequently 1940, Japan could no longer trade with other countries and the problem shifted to the physical transportation of natural resource from the Japanese colonies and occupied areas to mainland Nihon.

Japan considered that resources from the "Yen Bloc" (Korea, Taiwan, Manchuria and the rest of occupied China) were not plenty. In July 1941, in guild to secure more resources, Japan began to invade Southeast Asia, starting with French Indochina (Vietnam). This angered the US, which imposed oil embargo and asset freeze on Nihon. If oil imports from the US were cut off, Nippon'due south oil reserve would last only 2 years. At this point, Japan began to prepare a state of war with the US. Diplomatic efforts to maintain peace were tried only failed. With the Pearl Harbor attack in December 1941, Nippon started the Pacific War against the US and its allies.

Japanese leaders did not accept any articulate idea regarding how to fight a war against the US, allow alone how to win it. Nevertheless, they were encouraged by the brilliant victories of Nazi Frg in Europe. To them, totalitarianism of Nihon, Germany and the USSR seemed superior to American capitalism and individualism.

Immediately afterward the outbreak of the Pacific State of war, Japan invaded a broad area of Southeast Asia simply shortly began to retreat nether allied counter-attacks. Japanese ships and planes were quickly lost while Americans congenital more and more of them. From late 1944, US aeriform bombing (mainly incendiary bombs) destroyed near all cities in Nippon (except Kyoto). In 1945, the US troops landed in Okinawa, two atomic bombs were dropped in Hiroshima and Nagasaki, and the USSR entered a war confronting Nippon. A few days later, Japan surrendered.

Economically, the principal reason for Japan'due south defeat was that its war economy collapsed due to the lack of inputs and energy. Nippon lost virtually all ships and could not transport materials from abroad (including colonies).


Neighborhood groups were organized to put off burn from US bombing. Actually, the bombing was and then vehement that this kind of practise was virtually of no use.	Every bit young males were sent to state of war fronts, women were trained to defend the homeland. Due to the lack of weapons, they were provided with bamboo swords. Women and high school students were also mobilized to piece of work in military factories.

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The origin of the Japanese organization

Many of the characteristics of the post-WW2 Japanese economy originated during the war period (1937-1945). They feature long-term relationship and official intervention such as:

Heavy and chemical industrialization drive
Administrative guidance (gyosei shido)
Subcontracting system
Separation of ownership and management
Lifetime employment organisation and seniority wage
Enterprise-based trade unions
Financial keiretsu and mainbank organization
The Bank of Nippon's "window guidance" and "convoy system"
Food command system
Foreign exchange budget and surrender requirement

All of these policies and systems were deliberately adopted past the government in the late 1930s through the early on 1940s in order to finer execute the war. Before that, the Japanese economy was more than neoclassical-- characterized by freer entry, short-term contracts and high labor mobility.

These wartime features were largely retained even after WW2 and worked relatively well in the 1950s and 60s when Nihon was growing rapidly. However, they are now considered obsolete and to accept become barriers to change in the age of Information technology and globalization. Among the listing in a higher place, the final 1 was abolished long ago but about others withal remain in the Japanese economy even today in various degrees.

There is a argue among economists regarding the interpretation of the Japanese system.

The majority of Japanese economists argue that Japan should go back to the free market model, because the relational and interventionist organization was originally alien to Japan. These may have played a historical role before, but nosotros do not need them any more (some aspects, like priority on job security, could be partially retained, all the same). Prof. Masahiro Okuno-Fujiwara and Prof. Tetsuji Okazaki (both at Tokyo Academy) are leading advocates of this view.

Merely a minority vocalization says that Japan needed a organisation based on long-term relations, with or without war. When an economic system graduates from the calorie-free industry stage (textile, nutrient processing, etc) and moves to heavy industrialization and machinery product, free markets may not be the best choice. Official support and long-term relationship become indispensable for industries with large initial investments, high applied science and intra-firm labor market. As Japan began heavy industrialization in the 1920s and 1930s, the free economic system inherited from Meiji was inappropriate and had to modify. The war provided a good alibi for this alter. But fifty-fifty without the state of war, Japan had to adopt a new arrangement anyhow. Prof. Yonosuke Hara (Tokyo University) presents such a view. He says that the costless economy of Meiji was strange, and the relational and interventionist system is more normal to Japan, dating back to the Edo period.

According to the latter view, implications for today's developing countries are equally follows. Low-cal industries and electronics assembly can be promoted by free trade and FDI, but if the country hopes to absorb technology vigorously and have advanced manufacturing adequacy, certain industrial promotion measures go necessary; Japan, Taiwan and Korea all adopted this method in the past. By dissimilarity, no Association of southeast asian nations countries seem to have broken through this "drinking glass ceiling" and internalized the industrial power. If latecomer countries are now banned from taking these measures considering of WTO, FTAs, World Depository financial institution policy matrix so on, they may remain at a low level of industrialization (contract manufacturing, elementary processing, etc) and not get to a college level of engineering.

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<References>

Banno, Junji, Nippon Seijishi: Meiji, Taisho, Senzen Showa (History of Japanese Politics: Meiji, Taisho and Prewar Showa), Academy of the Air Press, revised 1993.

Iwanami Shoten, Nijukozo, Nippon Keizaishi 6 (The Dual Structure, Japanese Economic History vol. vi), T. Nakamura and Chiliad. Odaka, eds, 1989.

Iwanami Shoten, Keikakuka to Minshuka, Nihon Keizaishi seven (Planning and Democratization, Japanese Economic History vol. 7), T. Nakamura ed, 1989.

Noguchi, Yukio, 1940 Nen Taisei: Saraba Senji Keizai (The 1940 Regime: Goodbye to the War Economic system), Toyo Keizai Shimposha, 1995.

Okazaki, Tetsuji, and Masahiro Okuno, eds, Gendai Nihon Keizai System no Genryu (The Source of the Mod Japanese Economical Organization), Nihon Keizai Shimbunsha, 1993.

Takafusa Nakamura, Showa Kyoko to Keizai Seisaku (Showa Depression and Economic Policy), Kodansha Gakujutsu Bunko, 1994.