1.1.1 The post-war reconstruction of Japan and Asia
Right after the Second World War, the Japanese economy, which had been considered one of the most developed economies in Asia, was still agrarian. In 1950, five years after the end of the Second World War, 48% of employed Japanese workers were engaged in primary industries such as agriculture, forestry, and fishery (Yoshikawa, 2012). Only half the number of boys entered high school, while the ratio for girls who entered high school was as low as just one-third. The average per capita income was $124, one fourteenth of that in the United States (US). Because of the mounting problems due to wartime destruction, Japan had to focus first on stabilizing and reconstructing its domestic economy. As such, it took a while before Japan regained its position in the wider global economy, including expanding into and re-establishing, business relationships with other Asian economies.
This changed in 1950 when the “special demand” spurred by the Korean War triggered Japan’s subsequent rapid economic growth. This induced investments in key sectors such as the material industries, and massive labor migration from rural to urban areas led to significant improvements in productivity. This accompanied increased demand for durable consumer goods, which placed the Japanese economy back on a growth trajectory.
Japan’s efforts of post-war reconstruction started to bear fruit in the 1950s. When the Bandung Conference was held in Indonesia in 1955, Japan began to rebuild diplomatic relations with other Asian countries. In the 1960s, Japan was experiencing a construction boom in the preparation for the Tokyo Olympic Games in 1964, while already becoming an advanced economy.
For many other countries in Asia, the biggest challenge in the war’s aftermath from 1945 to the 1950s was in relation to achieving political independence and national stability. A power struggle between the US, as the representative of the Western liberal camp, and the Soviet Union, which represented the Eastern socialist camp, emerged, and Asia became embedded into the so-called Cold War. As these Asian countries gradually achieved political independence from their former colonial regimes in the 1960s, the main goals for these Asian countries, in particular for those belonging to the Western camp, shifted from political independence towards economic development (Perkins, 2013; Miyagi, 2014).
As a result, two conditions underlying the regional economic and political structure emerged in the 1960s: Japan’s ascendance and its return to Asian diplomacy on the one hand, and the increasing emphasis on the pursuit of economic development among Asian countries on the other. At that time, Japan viewed the rest of Asia as a region characterized by low levels of development and widespread poverty, and its involvement was primarily from a development assistance angle. Hara, one of the major Japanese scholars on Asian economics at the time, published a book on the same topic as this one, Contemporary Asian Economy, in 1967, which first sentence reads, “Asia, needless to say, is classified as a low-development area, economically and socially” (Hara, 1967). Moreover, the per capita GDP in East Asian countries remained remarkably low even in 1970. Although Japan’s per capita GDP had reached $2,040 (40% of that in the US for the same year), Singapore’s was $925 (18%), while South Korea’s was only $286 (5.6%).
During the Cold War, the US also wanted Japan to become more deeply involved in the political and economic relationships of Asia. Walt Rostow, famous for his “economic takeoff” theory, stated that Asia could modernize its rural-based economies through international trade and industrialization. In this context, he wrote that “Japan has a major mission to perform; and we in the US are prepared to work side by side with you, assisting with resources, technical assistance, good will, and faith that a new, free and modern Asia shall emerge” (Japan Council for International Understanding, 1965). After Japan’s accession to the Organization for Economic Co-operation and Development (OECD) in 1964, Japan’s commitment to Asian economic development, was manifested clearly by its involvement in the establishment of the Asian Development Bank in 1966 (Okita, 1966).
1.1.2 Underdevelopment and stagnation in Asia
In the post-war years, the overwhelming economic disparity between developed and developing countries was a key global issue, the so-called North–South problem. As such, one of the crucial issues was understanding why Asia has been so poor. Development economists at the time looked at the factors of stagnation and poverty in Asia from a structuralist point of view, which emphasized the unbalanced structure of the economic relationships between developed and developing countries (Esho, 1997).
In connection with this, Raul Prebisch’s “dependency theory” claimed that modernization of low-development areas in the world economy would proceed in a form dependent upon developed countries. The main reason for this was the deterioration of such areas’ terms of trade. The terms of trade refer to the number of units of imports that could be exchanged for one unit of export. Developing countries typically exported resources and primary products. As the prices of those export items tend to increase less rapidly than manufacturing products, dependency theorists argued that the terms of trade tended to deteriorate for developing countries in the long run. Due to their history of colonization, the economies of Asian countries had been tailored to produce specific primary products by the old colonial powers, leading towards a monoculture. Under such initial conditions, an export pessimism perspective emerged. Curbing dependency on primary products became the objective of development policy, which led to wide-spread advocation of import-substitution industrialization strategies. This strategy aimed at substituting imported industrial products with domestic production, and the policy tools included higher tariffs and quantitative restrictions on imported goods.
Another issue was the relationship between population growth and the savings (investment) rate. Consider an economy with a high population growth rate and a relatively low savings/investment rate. If population growth rate outpaces per capita income growth, a “low-income equilibrium trap” can emerge (Hayami, 1997, Chapter 5). Additionally, in developing countries of Asia, there was “excess” population in rural areas. The “excess” refers to farmers who have zero marginal productivity of labor, which suggests that the agricultural sector can maintain its output even if the number of workers is reduced. Clifford Geertz, who examined rural villages in Indonesia, identified a phenomenon what he called “shared poverty.” This is a situation where people in villages with excess workers tend to divide the total output among its members equally under high population growth, which leads to culminate in impoverishing everyone equally (Geertz, 1963). Gunnar Myrdal’s book entitled Asian Drama: An Inquiry into the Poverty of Nations also discusses the lack of a productivity-improving mechanism in the agricultural sector...
