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Lecture 3

Lecture 3--The Development of Asian Capitalism.doc

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York University
MGMT 1030
Frank Miller

1 The Development of Asian Capitalism MGMT 1030 Schulich School of Business 2 Japan Industrial Growth in Japan to 1867  Tokugowa Shogunate ruled Japan from 1603  Policy of sakoku (closed country) in place from 1639  Japanese market forcefully opened by Commodore Matthew Perry in 1854  Japan had a history of commercial and entrepreneurial activity but no industrial sector  Meiji Restoration re-established control of Emperor and oligarchs in 1867  Japan decides that in early 1600’s, did not want to trade with European countries  During 1700’s only permitted Dutch to com e to Nagasaki to trade  Dutch encountered some problems, Napoleonic Wars!!; leased Dutch flags to go to Nagasaki to trade  Perry sent to Japan proposing new trade relationship between USA and Japan  Perry used Naval force on Port Edo to meet the emperor and show seriousness; agreement later signed Japan Industrial Growth in Japan, 1867-1945 1) General Outlook of Japan’s Leaders  Modernize the economy along Western industrial lines  Prevent Western control of Japan as had occurred in China  “Enrich the country, strengthen the military”  Charter Oath of 1858; seek knowledge world-wide and use knowledge to strengthen imperial rule  Japan hired foreign experts to help set-up modern military, navy and industry 2) Economic Development Policies and Results  Strong government role in the early decades of the Meiji Restoration  National land tax provided stable revenue source  Government financing of rail networks and heavy industry; wanted to kick-start a domestic economy than use resources from other countries  Primary industrial surge occurred between 1890 and 1914  3,400 miles of railway by 1914  Output of silk quadrupled from 1890 to 1913  Imports and exports increased by a factor of eight from 1890 to 1913  Economic performance in 1920s and 1930s mirrored that of other industrial countries  Japanese economy controlled by conglomerates known as zaibatsu  Family-owned holding companies with horizontal links across a wide range of industries  Four largest zaibatsu were Mitsui, Mitsubishi, Sumitomo, and Yasuda  Big family owned companies, vertical integration  Mitsui family controlled banking, textile, and coal mining sectors  Mitsubishi family controlled the Japanese shipbuilding and railway sectors 3  Zaibatsu closely allied with the Japanese government Japan Industrial Growth in Japan, 1867-1945 [cont’d] 3) Territorial Expansion of Japanese Empire  Japan used industrial growth to emerge as a world power  1904-1905 Russo-Japanese War  Japan concentrated on China in the 1930s  Full scale war between China and Japan broke out in 1937  Western sanctions against Japan necessitated a Japanese response  Oil sanctions, in particular, his Japan hard  Japan entered the Second World War in December 1941  Expansion throughout the Pacific region  Ultimate Japanese defeat in 1945  Results of World War II Devastation  Human loss—1.8 to 2.8 million Japanese deaths  Material loss—25% of infrastructure destroyed  Industrial production dropped to 10% of pre-1941 level  Commodity shortages  Hyper-inflation  Japan, therefore, started from scratch in 1945; culminating use of atomic weapons  Internationally isolated; Japanese people wanted to re  Japan used military force to attain vital resources  Japan needed raw materials and labour; began program of territorial expansion  Western nations wanted to restrain them, protect their interest in China; issued sanctions against Japan Japan Industrial Growth in Japan, 1945-Present 1) Phase I (1945-1970)—Catching Up  Postwar reforms  Dissolution of the zaibatsu in 1945; businesses got destroyed however their connections remained  Agricultural reforms  Land purchased from absentee landlords and sold to former tenants to encourage independent farming  Labour Market reforms  Labour unions legalized  Education reform  Compulsory education extended from six to nine years  Educate, reform, expand  Favorable external conditions in 1950s  Korean War, world economic growth  Japan’s return to the international community  Government heavily involved in loans to promote key industries 4  Foreign exchange reforms stabilized currency in 1960s  Great growth before 1970  8.8% annual growth from 1956-1960  9.2% annual growth from 1961-1965  11.1% annual growth from 1966-1970  Labour market policies  “life-time” employment - You join a company and give them your life; they devote themselves to you by securing your job 2) Phase II (1970-1990)—The Bubble Economy  Declining growth from Catch-up Period  4.5% annual growth rate from 1971-1980  Major problems hit the Japanese economy in the 1980s  Firms sought to constantly expand  Appreciation of Japanese currency  Debt loads of corporations increased  Social pressure to maintain job security  Asset market inflation  Land prices doubled  “Excess” economy encouraged  Low interest rates remained  4.1% annual growth rate from 1981-1990 - To maintain trend Japan needed to expand, thus debt increased - Japanese goods priced higher due to currency expansion Japan Industrial Growth in Japan, 1945-Present [cont’d] 3) Phase III (1990-present)—Stagnation and Modest Recovery  Bubble economy burst in 1991  Stagnation of corporate profits  Bankruptcy of major financial institutions  Unemployment rate increased from 2% in 1990 to 5% in 2000  Rise in contract and part-time work  Growth of the economy slows  1.5% annual growth rate from 1991-1995  1.0% annual growth rate from 1996-2000  1.4% annual growth rate from 2001-2005  Structural budget deficits in place since 1993 - Social displacement created by perpetual movement of labour force and high-unemployment; country did not experience people out of work China The Chinese Economy, 1300-1820  Population increase from 100 million in 1300 to 380 million in 1820 with stable per capita income 5  Chinese state supervised by a large squad of bureaucrats with little sustained opposition from clerical or military forces  Economy dominated by agriculture  Heavy investment in irrigation projects  Grain yield per hectare increased from 1,000 kilograms to 1,879 kilograms between 1400 and 1800  Increase in urbanization but little industrial development China The Chinese Economy, 1820-1949 1) International Dominance of China, 1820-1912  Estimates i
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