489 Japan’s post-war economic success: Deming, quality, and contextual realities

Post-war political economy
In the immediate post-war period, Japan’s industries were largely paralyzed by
weak domestic demand, a lack of disposable income among domestic
consumers, inconvertibility of the yen, the loss of virtually all foreign trading
partners, and an army of occupation that sought to break the back of Japan’s
largest industrial groupings – the zaibatsu organizations. US policy was to
restore Japan’s economic vitality and industrial base, but the USA also sought
to dissolve the zaibatsus, which were seen as pivotal players in the militarization
of pre-war Japan and the aggressive policies that led to the Second World War.
Deprived of her imperial markets, confronted by embittered and revolutionary Asian
neighbors, faced with unbalanced and languishing world trade, Japan had little outlet for her
dormant economic strength. To overcome these obstacles, the US, in 1947, reversed its policy
of ending Japan’s economic dominance in Asia and sought to restore her supremacy through
peaceful trade and commercial self-support. In the early 1950s, however, when these initial
efforts fell short, the US developed the US/Japan Economic Cooperation Program, which
proved highly successful in subsidizing Japanese recovery long after the Occupation ended.
This policy was the decisive American strategy for Japanese recovery and for overall
American relations with the Far East until 1960 (Redford, 1978, p. 277).

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Japan’s post-war
economic
success
493
In fact, the complex obstacles in the path of Japanese economic revival were
daunting, and recovery could not be accomplished without a broad and
expanding export trade. With limited natural resources, Japan depends on its
exports to pay for importing materials required to manufacture goods for the
export and domestic markets. 
The USA and Japan emerged from the ashes of the Second World War to
begin a new rivalry with a sacrificing USA willing to cede a large degree of its
new found economic influence over Asia to the Japanese. Table I summarizes
many of the key features of the immediate post-war economic and political
relationship between the USA and Japan. This array helps the reader appreciate
the complexity of US concerns over the direction a beaten and beleagured Japan
might follow if economic recovery did not begin quickly.
Without trade with Asia, Japan, like Europe, depended on US imports. But
how could Japan pay for those imports, especially when nylon’s displacement of
silk eliminated Japan’s only significant dollar-earning export? US relief and
recovery aid sent over $2 billion in imports into Japan from 1945 to June l951,
but aid was unpopular in the USA and served as only a temporary solution to
the problem of insufficient exports and the resultant dollar gap (Redford, 1978,
p. 278).
By 1948 the USA sought to stabilize the Japanese economy and restore
export competitiveness, but global trading conditions could not offer sufficient
demand for Japanese exports (Bank of Japan, 1950, p. 41). US action was
essential to put to work Japan’s immense unused plant and labor capacity and
thus to secure Japanese allegiance to US policies in Asia.
When US Army officials determined, in 1950, that purchasing labor and
materials in Japan for US military construction in Okinawa had the same
economic effect as increasing Japanese exports, US forces began an intentional
program of “buying Japanese” at the expense of lost business for US
manufacturers. The military, under the terms of the Mutual Defense Assistance
Program (MDAP), had more than $4 billion to spend without the restrictions of
the “Buy American” Act, which required government orders to be placed with
US firms unless foreign prices were more than 25 percent less (Redford, 1978,
p. 284).
By 1963, military procurement orders would reach a cumulative total of $7.2
billion. Procurement totaled more than $800 million in both 1952 and 1953
(Redford, 1978, p. 290). Long-term procurement was assured by July, 1952, when
the National Security Council decreed that, despite Japan’s favorable dollar
position, owing to procurement, there could be no relaxation of the cooperation
effort. The NSC ordered “that every effort be made to expand Japan’s dollar
earnings from normal commerce and from programs of the US military and
[from] economic assistance to other countries, with a view to avoiding, if
possible, any requirement for direct economic assistance” (National Security
Council, 1952, p. 7).
The USA also decided to tie economic aid bound for other Asian countries to
purchases of capital goods in Japan. This forced victims of Japanese war-time

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Jou
rnal of
Manag
ement
Histo
ry
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494
Japan
USA
Power relationships
Vanquished
Victor
Occupied
Occupier
Aid-dependent
Aid supplier
Trade
Few trading partners
Pre-eminent trading nation after Second World War
Former partners feared and hated Japan
Virtual domination of world markets after Second World War
Increasing desperation to re-establish overseas 
Largely self-sufficient
markets for Japanese goods
Growing need to re-establish raw material
supplier relationships
Industrial base
Huge overcapacity for production
Running at full capacity
Desperate need for overseas customers to
Seeking to scale back and “civilianize” production
stimulate large-scale industrial production
Strong anti-trust, anti-monopoly bias
Huge zaibatsu industrial combines partially
Initially seeking to destroy zaibatsu system
replaced by keiretsu system
Product characterization
Civilian products seen as cheap imitations of
Finest quality and largest quantity available
Western goods
Competition scarce or non-existent
Need to differentiate its products from competition 
Quality is assumed, not a special target or focus
and win acceptance
Quality is widely perceived as major weakness 
after Japan’s political image and absence of 
venture capital
Political factors
Wild card. USA fearful Japan may seek 
Leader of new Cold War
accommodation with Russian and Chinese
Ideological commitment to keep Japan within western orbit
Communists if economy stagnates
Korean War provides an ideal mechanism to underwrite Japan’s
Korean War serves as catalyst for Japanese
industrial revival
reindustrialization