What this lesson teaches
I can judge which factors did most to transform the economies of Japan and China over time.
Syllabus 9174, Paper 1, Theme II, Learning Outcomes. evaluate the factors that contributed to the economic transformation of Japan and China over time
Make a guess
Japan's Ministry of International Trade and Industry (MITI) guided growth from 1949. How do you think it did this?
- It left economic decisions to the free market.
- It owned and ran the factories, like a communist state.
- It chose key industries and steered money and technology to them.
Show the answer
It chose key industries and steered money and technology to them.
MITI controlled foreign currency and technology licences and gave guidance firms usually followed.
The state guided growth by choosing key industries, steering savings to them and protecting them while they grew.
The Ministry of International Trade and Industry (MITI), created in 1949, led industrial policy. It chose industries for growth: first steel, shipbuilding and chemicals, and later cars and electronics.
MITI had real power in the 1950s and 1960s. It controlled access to foreign currency and approved licences to import foreign technology. It also gave "administrative guidance", informal advice that firms usually followed.
The state steered savings into industry. Money saved in the postal savings system was lent through government programmes and the Japan Development Bank. The Ministry of Finance kept interest rates low so firms could borrow cheaply.
Protection gave young industries time to grow. Imports of cars and other goods were restricted until the 1960s, and foreign firms found it hard to invest in Japan.
In 1960 Prime Minister Ikeda launched the Income Doubling Plan, which aimed to double national income in ten years. The target was met in about seven.
Policy did not always succeed. In the early 1960s MITI wanted to limit the number of car makers. Honda went ahead anyway and became a major car maker.
- MITI
- Created 1949; led industrial policy.
- Income Doubling Plan
- 1960: target met in about seven years.
- Administrative guidance
- Informal advice that firms usually followed.
Real examples to use
Japan Development Bank, 1951
A state bank lent cheaply to priority industries such as steel, power and shipbuilding.
Sony's licence, 1953
MITI at first delayed Sony's request to buy foreign currency for transistor technology, which shows how much power officials had over firms.
Japan joins the OECD, 1964
Joining the rich countries' club meant opening the economy to more trade and investment, a limit on state protection.
Worked example: Assessing MITI
How much did government policy matter?
- Strong case: MITI chose winners and steered cheap credit to them.
- Evidence: steel, ships, cars and electronics became world leaders.
- Weak case: some successful firms resisted MITI.
- Judgement: policy mattered most in the 1950s and 1960s, then declined.
Watch out for this
MITI planned the whole economy like a communist state.
Japan stayed a market economy. MITI guided private firms through incentives and advice, and firms competed fiercely with each other.
Check your understanding
How did the state steer savings into industry?
- It borrowed heavily from American and European banks.
- Postal savings were lent through government programmes to priority industries.
- It took private savings by law and spent them itself.
Show the answer
Postal savings were lent through government programmes to priority industries.
Right. Cheap credit flowed to chosen sectors.