MITI and the Japanese miracle

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United States' in terms of population). Eleanor Hadley notes that although Japan's economy in the early sixties was roughly three times the size of the 193436 economy, exports as a proportion of GNP were only about two-thirds what they had been in the mid-1930's.

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By the late 1960's Japan's exports were only 9.6 percent of GNP, compared for example with Canada's 19.8 percent.

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From 1953 to 1972 Japan had a consistently lower dependency on exports and imports as a percentage of GNP at constant prices than France, Germany, Italy, Britain, or OECD Europe as a whole. Japan's exports ran at about 11.3 percent of GNP, and its imports at 10.2 percent, whereas the OECD European figures were 21.2 percent and 20.9 percent respectively.

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There is no question that Japan, as a heavily populated resource-deficient country, has to export in order to pay for its vital imports, but foreign sales were not the main factor driving its economic activity during high-speed growth.

Home demand led Japan's growth for the twenty years after 1955. The demand was there, of course, before 1955, but with the coming to power of the Ishibashi government in December 1956 and Ikeda Hayato's return to the post of minister of finance, Ishibashi and Ikeda launched the policy of "positive finance." Under the slogan "a hundred billion yen tax cut is a hundred billion yen of aid" as the basis for the fiscal 1957 budget, Ikeda opened up domestic demand as it had never been opened before.

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Balance of payments problems slowed positive finance during the "bottom-of-the-pot" recession (with its trough in June 1958), but the economy responded quickly to government discipline and rebounded in the Iwato Boom (July 1958-December 1961), during which Ikeda became prime minister and launched the Income-doubling Plan. The propelling force of the economy in this and later periods was private corporate investment nurtured by favorable expectations for the longer term that were created by the government; it was not export sales.

Technology transfersthe third alleged "free ride"were not exactly free, but there can be no question that they were crucial to Japanese economic growth and that the prices paid were slight compared with what such technology would cost today, if it could be bought at any price. Japan imported virtually all of the technology for its basic and high-growth industries, and it imported the greater proportion of this technology from the United States. But it is trivial and misleading to refer to this movement of patent rights, technology, and know-how across the Pacific and from Europe as a "free ride." It was, in fact, the heart of the matter.

The importation of technology was one of the central components