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Trouble Ahead for Japanese Economy

by Ching Jan

[This article is reprinted from Peking Review, #4, Jan. 25, 1974, pp. 15-17.]

AFTER weathering its sixth postwar crisis (1970-71) in early 1972, Japan’s economy rapidly entered a so-called “boom” period. However, numerous problems have now caused deep concern in Japanese economic circles over prospects in 1974.

The economy greatly developed in the postwar years. According to statistics by the Organization for Economic Co-operation and Development, the annual average growth rate of Japan’s gross national product was 9.1 per cent in the 1950s and 11.3 per cent the following decade. Such a rate surpassed that of the United States, the Federal Republic of Germany, France, Britain and other countries.

Some people claimed this was an “economic miracle” “seen by historians for the first time” as they tried to use it as an example to embellish the decadent capitalist system. In reality, it was a lopsided growth for, although it grew rapidly, the economy had a very weak basis. Though capitalist economy, generally speaking, develops in a more or less lopsided manner, Japan’s economy is more pronounced and serious in this respect. There are now some serious and difficult-to-solve problems confronting the economy which are caused by one-sided growth or very closely related to it.

Serious Agricultural Slump

Poor grain harvests in some countries and price increases of many farm products in recent years, particularly the U.S. restrictions on the export of soyabeans and other agricultural products last year, caused great alarm in Japan. This difficulty, which might seem like a bolt from the blue, was in reality the inevitable result of Japan’s economic policy over many years.

The one-sided growth of the economy is strikingly evident in the serious imbalance between the two big sectors—industry and agriculture. Industrial and mining output in 1970 already was 13.4 times that of the prewar level (1934-36). The rapid pace of Japan’s industrial growth was obtained at the expense of agriculture. Beginning from 1960, the so-called policy of rapidly developing the economy and doubling the national product within ten years was carried out. The Basic Agriculture Law drawn up in 1961 for reforming the agricultural structure called for drawing 60 per cent of the peasants into the cities within a decade. The so-called rural industrialization plan in 1971 enabled industry to further take up large tracts of farmland and caused large numbers of peasants to leave the countryside. Statistics show that the number of people employed in agriculture (including forestry) fell from 14.54 million in 1960 to 7.05 million in 1972. Since 1969, Japan’s farm output value either stagnated or dropped for three consecutive years. Total output value for 1971 was 4,330,700 million yen which was a 5.2 per cent drop compared with the previous year, despite a 32.1 per cent increase in the price index of agricultural products. From 10.2 per cent of the national earnings in 1960, agriculture’s net output value fell to 5.5 per cent in 1970.

Except for some increase in rice production, in the more than 20 years since World War 11, the country has seen a big decline in production of many agricultural products such as wheat, barley, soyabeans and miscellaneous grains. For example, 1955 wheat output was 1.46 million tons, but by 1972 it had dropped to about 300,000 tons, less than one-tenth the amount needed by Japan for domestic consumption. Japan’s rate of self-sufficiency in grain is the lowest of the major industrial countries. It is reported that this rate, if expressed in terms of grain prices, showed a drop from 90 per cent in 1960 to 74 per cent in 1972. Personnel in Japan’s Agricultural and Forestry Ministry said that Japan is now only 62 per cent self-sufficient in nutritives. From 1956 to 1959, Japan only had to import 700-800 million U.S. dollars’ worth of agricultural products, but in 1970 the amount had soared to 3,250 million dollars.

Japan has become more and more dependent on the United States for farm products. Under U.S. pressure in recent years, it has steadily expanded the sphere of free trade in agricultural products and carried out ahead of schedule the liberalization of agricultural imports for 61 agricultural products in 1971. When there was a surplus of agricultural products, the United States often complained that Japan had not bought enough of its farm products. But last summer when the United States saw that farm products were selling well on the international markets, it turned round and restricted exports of certain items. This brought about a shortage of soyabeans and other farm products in Japan, with food prices rocketing and people feeling very apprehensive.

Many capitalist countries experience the imbalance between the rapid growth of industry and a relatively backward agriculture. But in Japan this is much more serious than in sqme other countries. Take grain production in a few countries as an illustration. From 1960 to 1970, while the Federal Republic of Germany showed a 9.7 per cent increase, France 33.4 per cent and Britain 36.4 per cent, Japan had a 17.8 per cent drop (the decline was mainly in wheat, barley and miscellaneous grains). This was because the West European countries had made great efforts for many years to protect their own agriculture as well as that of the Common Market’s whereas Japan had preferred to ensure the monopoly capitalists as much profit as possible from a very rapidly growing industry at the expense of agriculture.

Worsening Inflation

Rising prices and currency inflation are economic ills common to all capitalist countries and Japan is no exception. Indeed, it is afflicted even more seriously.

In the 1960s, the trend of rising prices in Japan heightened as the economy rapidly expanded. This was particularly so for prices of consumer goods, ending the situation where these prices for most years in the 1950s were relatively stable (prices rising not much in an ordinary year and showing a slight decline in years of an economic crisis). During the 6th postwar economic crisis (1970-71), prices continued to rise: consumer prices in 1970 rose 7.3 per cent over those in 1969 while wholesale prices went up 2.4 per cent; consumer prices in 1971 were 6.2 per cent more than in 1970 while wholesale prices dropped 0.8 per cent.

Japan’s economy began picking up again from the crisis and the market showed a big price hike in 1972. This was especially so in the fourth quarter of 1972 when prices began to explode as never before and then continued shooting up in 1973. According to figures released by the Organization for Economic Co-operation and Development, by October 1973 Japan’s consumer prices had risen at an annual rate of 14.4 per cent. In addition, wholesale prices, which had shown only slight increases for many years, soared steeply. According to official figures, the wholesale price index for June 1973 was 13.6 per cent more than in the same month of 1972. The rise in wholesale prices for foodstuffs, fibre products, timber, iron and steel, and other goods broke all postwar records. As for retail prices, they shot up even more shockingly, particularly for daily necessities. As compared with April 1972, the April 1973 prices in the Tokyo area for fish, glutinous rice, bread and beef rose more than 20 per cent; soyabeans 41.7 per cent; turnips, potatoes and cabbages more than 95 per cent; and a square yard of cotton cloth in March 1973 cost 52 per cent more than at the beginning of the year. The rising prices of commodities together with increasing transport costs on the state-owned railways and rent hikes have seriously menaced the labouring people in clothing, food, housing and travel.

Compared with other major capitalist countries, Japanese workers’ wages have always been low, though the gap is gradually closing. At present, the situation is that the pay increases for many workers are not enough to offset the rises in prices.

The steep rises in prices are the result of the government’s inflationary policies (issuing an excessive amount of currency, sharp expansion in financial investments, etc.). The price increases in recent years of raw materials and agricultural products in world markets are also a factor stimulating price rises in Japan. Since the spring of 1973, the Japanese Government has adopted a series of price measures, such as readjusting financial outlays, expanding imports, raising the official interest rate several times, etc., in an attempt to check rampant price rises of commodities for a time. But this was to no avail. Prices kept going up and up. In particular, the Arab oil-exporting countries’ curtailment of Japan’s oil supply and the increase in the price of crude oil after the October Middle East war last year were like pouring oil on fire for Japan’s spiralling prices. Rising oil prices have pushed up production costs of nearly all industrial products. This coupled with large-scale speculation have recently accelerated without let-up the sharp increase in wholesale and retail prices. In November alone, wholesale prices went up 3.2 per cent. The rise in the retail prices of many commodities was 40 to 50 per cent and even as much as 70 to 80 per cent in one jump. Early this year, the Japanese Government was therefore forced to make price stabilization the policy question of first priority.

Sharpening inflation, particularly skyrocketing wholesale prices, has aggravated the economic difficulties at home and will weaken the competitiveness of Japanese goods on international markets and adversely affect foreign trade. It is reported that in the six months from April to September last year, Japan’s foreign trade showed an unfavourable balance of 1,067 million U.S. dollars, the first trade deficit Japan ever had in five years. Since last March, Japan’s balance of payments had a deficit for seven months running. This also was something unheard of in the past few years. Of course, there are many factors (such as the influence of up-valuing the Japanese yen, the increase in the import of capital, the effect of policies to promote imports, etc.) leading to this state of affairs, but inflation is undoubtedly one of the main factors for Japan’s unfavourable balance of payments.

Resources Problem Aggravating

With a lopsided growth of the economy, Japan’s resources problem has grown acute.

Japan is poor in resources. Sharp industrial growth has made it more and more dependent on overseas raw materials. According to statistics, reliance on foreign sources for copper, aluminium, lead, zinc, nickel, iron ore, coal, petroleum, natural gas and uranium, ten major raw materials and fuels, was 71 per cent in 1960 and 90 per cent in 1970, with aluminium, nickel and uranium 100 per cent and petroleum 99.7 per cent. Mineral imports in 1970 were as much as 8,600 million U.S. dollars, 44 per cent of the country’s total imports. Japan is the world’s biggest importer of resources.

Many capitalist countries today face an energy problem. This is more serious for Japan. The curtailment of oil supplies to Japan by the Arab oil-exporting countries after the 1973 October Middle East war put the Japanese economy in a very difficult situation.

Lopsided development of the economy has caused big changes in both Japan’s energy and industrial structures. As far back as the 1950s, Japan gradually cut down its coal production and replaced coal with cheap imported oil. Thus, oil has made up 73 per cent of the power resources. At the same time, the structure of the chemical industry also changed. After the 1960s, the petrochemical industry replaced some other chemical industries and today its products make up about 35 per cent of the chemical industry’s total output. Oil consumption went up drastically from a mere 8.7 million tons in 1955 to more than 240 million in 1972. As 80 per cent of Japan’s oil imports comes from the Middle East, the Arab oil-exporting countries’ cutting down oil supplies represents a drop of about 16 per cent in Japan’s total oil imports. According to official Japanese estimates, during the latter half of fiscal 1973 (October 1973-March 1974) petroleum imports will drop 20 per cent from 160 million kilolitres as planned to about 128 million kilolitres.

The drop in oil imports seriously affects all sectors of the national economy. After the Japanese Government on November 20, 1973 decided on a 10 per cent reduction in oil and electricity supplies to 12 industries, production in such industries as iron and steel, non-ferrous metal, petrochemical, synthetic fibre, paper-making, cement and automobiles was expected to fall 10 to 30 per cent in December. Production in the machine-building industry will also go down. As the oil companies have cut supplies to shipping companies by 30 per cent, 40 per cent of Japan’s ships will lie idle. On December 22, the Japanese Government declared a state of emergency throughout the country. Its newly established People’s Livelihood Stabilization Emergency Counter-Measures Headquarters held its first meeting the same day and decided on a 20 per cent cut in oil and electricity consumption in industry from January 1 this year. It also stipulated strict control of bank loans, postponement of public investments, reduction of investments by private enterprises in capital construction and paring down of the scale of the 1974 fiscal budget so as to reduce the demand for materials. The Japanese Economic Planning Agency predicted on December 21 that as a result of the drop in oil imports, the gross national product in fiscal 1974 would only show a 2.5 per cent growth in real terms, the smallest in the last 20 years and even lower than that during any postwar economic crisis.

Besides causing a drop in industrial production and slowing down the national economy’s growth rate, the reduction in oil imports will also bring a new change in Japan’s industrial structure. Price rise in imported oil will have an adverse effect on Japan’s foreign exchange reserves and balance of payments.

The oil crisis has already affected various phases of social life the ban on the use of private automobiles on holidays, shortening business hours of restaurants, theatres and other recreational facilities, reducing the number of pages in newspapers, cutting down broadcasting hours for television and radio, etc. It has also brought on a chaotic state in which people hurry to withdraw bank deposits, prices on the stock market fall and there is a rush to buy daily necessities.

The above facts fully show that Japan’s economy, which expanded at high speed in the postwar years, is on shaky grounds. In the past there was a very close link between the “high-speed growth” of the economy sought by Japanese monopoly capital and the “rich and cheap sources of energy” which were easily obtained. With the energy supply becoming a big problem today, the fundamental weakness of the abnormal development of Japan’s economy is exposed. Many people in economic circles and the bourgeois press talk about Japan having to make a “reappraisal” of its present “oil-wasting economy” and “change” the industrial structure into an “energy-saving economy.” Of course, this at present is nothing more than what they are trying to envisage.

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