Japanese economic miracle

From the mid-1950s to 1973 Japan's economy grew by roughly 9 to 10 percent a year, one of the fastest sustained expansions of any large economy. In 1968 it passed West Germany to become the world's second-largest market economy, behind only the United States. A country that had been bombed to rubble in 1945 was exporting cars, steel, ships, cameras and electronics around the world.¹

The base was laid by the Allied occupation after Japan's surrender: land reform, breaking up the zaibatsu conglomerates, labor laws and the 1949 Dodge Line, which ended inflation and fixed the yen at 360 to the dollar. The Korean War then gave Japanese factories large US military orders. Under Prime Minister Hayato Ikeda's 1960 income-doubling plan, the Ministry of International Trade and Industry (MITI) steered credit and imports toward steel, shipbuilding and cars, while firms like Toyota refined lean production. Households saved at very high rates, and the funds flowed through banks into industry.¹²³

The results showed everywhere: the Shinkansen bullet train opened in 1964, nine days before the Tokyo Olympics, and Sony, Honda and Toyota became global names. Growth ended with the 1973 oil shock, after which Japan grew more slowly but stayed rich, and the debate over how much of the miracle was policy and how much was markets and effort continues. The model of state-guided, export-led growth was copied across East Asia, beginning with South Korea.³