Download Miracle Growth in Japan: Its Crucial Significance for the Economics

Miracle Growth in Japan: Its Crucial Significance for the Economics
and Geopolitics of the Cold War
Carl Mosk
Japan’s Miracle Growth played a major role in the ultimate defeat of Eurasian
Communism. This conclusion flows from hard-nosed realism and from “soft” ideological
concerns. Embedding a military power equation into a geopolitical model illustrates the
argument about Cold War realism. Beyond this, Japan’s miracle growth experience made a
strong case for economic competition and democracy. Japan’s productivity growth during the
miracle growth era put to shame the record of the Communist powers during the period.
Fueling Japan’s rapid total factor productivity growth was innovation driven market
competition. Complementing it was political completion, a lesson not lost on Japan’s East Asian
neighbors, notably South Korea and Taiwan. Japan served as both political and economic model
for other East Asian economies allied with the United States. Finally Japan’s burgeoning trade
volumes mattered. Japan emerged as a trading hub in the Asia-Pacific making it the spark-plug
for Asia’s remarkable post-1955 trade boom.
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Introduction
The Cold War was Janus faced.
On the one hand it was a “soft” war, a conflict over ideas. It pitted democracy against
totalitarian government. It pitted political competition against government operating under a
system whereby a single party, the Communist Party, enjoying a monopoly over politics
dictated policies to state bureaus. As well it was all about the virtues of market oriented
economic competition, the fate of firms and industries largely shaped through the invisible
hand of supply and demand, albeit with nudges from government agencies. Opposing this
approach was centrally planned economic performance, bureaucrats following the lead of
Communist Party politicians in setting relative prices and quotas for production units based on
an ideological and strategic calculus.
At the same time the Cold War was a conflict over hardnosed facts on the ground. It was
geopolitical. It pitted a Communist Bloc stretching from East Germany and Czechoslovakia in
the West across the vast reaches of Central Asia and Siberia to the East and South China Seas. It
was about putting boots on the ground, launching nuclear armed submarines and bombers,
carving out hardened nuclear weapon silos, always taking into account geography that is
fundamental to gaining and sustaining strategic advantage. How costly is it to move tanks and
armor across terrain? How expensive is it to position air craft carriers off the coastline of
prospective enemies? What costs are involved in building and maintaining bases in remote
locales?
2
What made the Cold War a “cold” – not a “hot” – conflict is the fact that the geopolitical
reality was generally about threats to employ force, abstaining from all-out military
engagement. To be sure, the great powers of the Cold War fought some “hot” wars against
each other: the Korean War and the Vietnam War are prime examples. But these were proxy
wars informed with a strong tinge of local nationalism. The Korean War ended up dividing the
Korean peninsula, spawning two nation-states; the Vietnam War ended up consolidating a
Communist nation-state. However neither the Communist bloc nor the Containment bloc allied
with the United States used the ultimate weapons available to them: atomic and nuclear
bombs. Call it Mutually Assured Destruction; call it the balance of power; call it detente.
Military potential overshadowed blood stained warfare during the Cold War.
The logic of geopolitics and the logic of ideology do not always go hand in hand. Indeed
the United States, claiming to be a bastion of freedom and democracy, felt it had no choice but
to lavish funds and weapons on dictators and monarchs in crafting a containment policy,
participating in a set of alliances that created a perimeter allies boxing in the Communist bloc
that stretched across the vast reaches of the Eurasian heartland. With geopolitics in mind the
United States gave succour to Syngman Rhee in South Korea, to Chiang Kai-shek in Taiwan, and
to the Shah Mohammad Reza Pahlavi in Iran. Likewise the Soviet Union courted India, the
world’s most populous democracy. For the Soviet Union establishing a group of friendly ports
on the Indian Ocean that its battleships and submarines could visit took precedence over its
dislike of bourgeois democracy as practiced by a country in which British parliamentary values
loomed large.
3
For all of the inconsistencies between geopolitics and ideas that were part and parcel of
the Cold War, the cases where ideology and military potential overlapped are impressive. In the
non-Communist bloc, notable are Australia, New Zealand, Canada, the United Kingdom, and the
democracies of Western Europe. The first three countries – along with the United States – the
Western offshoots, are countries profoundly shaped by their British colonial origins. Of the
countries of non-Western European origin, it is the burden of this paper that Japan is a striking
example of a Cold War ally of the United States for which “soft” and “hard” considerations
overlapped.
Convergence and Containment
Cold War realism was geopolitical with a vengeance. In the modern world geopolitics
revolves around three realities, three facts on the ground: geography, economics, and
nationalism.1
Consider nationalism. The two major alliance systems of the Cold War period had to
contend with nationalism that threatened to blow each system apart.
In the case of the Soviet Union’s alliance system, nationalism raised its ugly head many
times. First was 1948, when Yugoslavia fell out of the Soviet zone of influence over Tito’s split
with Stalin. Second was the Soviets invasion of Hungary, suppressing a popular revolution
against Soviet influence in 1956 with the force of tanks and AK-47’s. Third was the split
between China and the Soviet Union, beginning in the early 1960s and accelerating during the
Cultural Revolution in China when the ideologues of the two nation-states engaged in vitriolic
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rhetoric aimed at undermining each other’s credibility. Again, during the 1960s, the Soviet
Union and its Warsaw Pact allies – Bulgaria, East Germany, and Poland – felt it necessary to
squash Alexander Dubček’s Prague Spring with military force. Finally, late in the Cold War, the
Soviets – seeking to garner influence in the Indian sub-continent in order to gain warm water
ports on the Indian Ocean, invaded Afghanistan in 1979 with the aim of bolstering the Marxist
inspired Democratic Republic of Afghanistan that came to power with the Saur Revolution. This
initiated a decade long conflict whose implications continue to reverberate today.
While nationalism failed to jolt the alliance systems which the United States crafted or
joined to the same extent as it did the Communist bloc, it did raise its ugly head.2 France, stung
by the fact that it felt slighted due to the special relationship between the United States and
the United Kingdom, abandoned the North Atlantic Treaty Organization (NATO). Iran and Iraq,
two of the nation-states in the Central Eastern Treaty Organization (CENTO), became bitter
enemies, eventually engaging in a bloody conflict. The United States maintained separate
bilateral arrangements with its three North East Asian allies – Japan, South Korea, and Taiwan –
because it was well aware of the nationalistic rivalries that divided the three countries, an
upshot of the fact that Korea and Taiwan were part of the Japanese Empire that collapsed at
the end of the Second World War.
Natural geography – mountains, sea coast, rivers, lakes, and plains - is also fundamental.
It is fundamental in a world divided into nation-states each of which claims sovereignty over
land and ocean expanse immediately off its shores. Following the brilliant insights of
Mackinder, scholars, military theoreticians and politicians, divide up the globe into three main
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zones.3 These are the Heartland of the Eurasian land mass, occupied by Russia once it defeated
the Mongols and established control over the vast flatlands of Siberia; the Rimland of Eurasia
consisting of four marginal sub-regions (China, India, Europe and the Middle East); and the
Outer Insular Crescent consisting of the Americas, Oceania, and the island archipelagos of the
Atlantic, Indian and Pacific Oceans. In Mackinder’s model of a “closed world system” the
Heartland and the Rimland taken together constitute the Eurasian land mass. Adding to Eurasia
the African landmass yields the World-Island surrounded by oceans and peripheral continents.
The vast bulk of the world’s population residing in Eurasia, Mackinder reckoned that controlling
the Heartland was the essence of exerting global power: 4
“Who rules East Europe controls the Heartland/Who rules the Heartland commands the
World-Island/Who rules the World-Island commands the World.”
Mackinder was writing before advances in air and naval power began to erode the advantages
of controlling the Heartland. Mackinder’s reasoning focused on the fact that in the Heartland
and only in the Heartland soldiers and armaments could move back and forth quickly and
relatively cheaply on railroads from the Rimland in the west (Europe) to the Rimland in the east
(China).
Technological advances have forced us to modify geopolitical reasoning. In a world of
massive aircraft carriers bristling with jet aircraft, deep water submarines and weapons of mass
destruction – a world Mackinder did not and could not have been expected to anticipate controlling the Rimland and the Outer Insular Crescent become increasingly important.
Moreover in a world in which global commerce rules rather than global warfare access to the
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oceans becomes increasingly vital. The reason is simple: most international commerce in
manufactured goods moves across oceans. This fact has become increasingly important in a
global world of commerce informed by manufacturing chains, components for cell phones
fabricated in one side of the globe being ultimately assembled and marketed on the other side.
Acknowledging that Mackinder’s vision was limited by the technology of warfare with
which he was acquainted should not blind us to the significance of the Soviet Union controlling
the Heartland during the Cold War. In point of fact the Soviet Union enjoyed a huge military
advantage over its most important adversary the United States that lay far removed from the
World-Island by two vast oceans, the Atlantic and the Pacific. In short, the potential cost of
exerting military force on both ends of the Eurasian land mass was far lower for the Soviet
Union than the potential cost to the United States of containing the Communist bloc in Eurasia.
We have just introduced economic considerations into the geopolitical calculus of the
Cold War. Let us see where this leads us.
There is an elementary equation with which we can capture the economics of military
potential crucial to the dynamics of the Cold War where threats and geopolitical pressure
generally took precedence over actual military conflict: 5
[1]
M = (mY)/pmf = (myP)/pmf
where M represents military potential of a country, m is the rate at which the country converts
economic resources into military activities (the military conversion rate), Y is total national
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income (gross domestic product, GDP), pmf is the relative cost of exerting military force. Since
total income Y equals the product of per capita income y multiplied by population P the
equation can also be expressed in terms of per capita GDP.
Let us go past the formalism of this equation to see what it means in common sense
terms. What the equation says is that there is a pie, the total economy of a nation-state. It is
divided up into two sectors, a civilian sector and a military sector. Other things equal if the
military conversion rate m is larger, the size of the pie going to military purposes constitutes a
more generous slice of the total economic pie. For instance North Korea, a heavily militarized
state, has a very high military conversion rate.
But how costly is a unit of military activity in relative terms? If it is relatively cheap in
comparison to civilian economy prices, every dollar, euro, yen, or yuan, etc spent on the
military looms large in strategic terms. Alternatively if the relative price of military force is high,
the military does not get a lot for each dollar, yen, euro, or yuan it manages to extract from
civilian politicians. Again, the larger is GDP, the greater is the military potential of a country,
other things equal. Economic size matters because per capita income and population size
matter. Policy making in terms of the military conversion rate matters. Finally all of the factors
– economic production costs, geography – are important because they shape the relative cost
of exerting military force.
This thinking leads us to the conclusion that the Soviet Union enjoyed a strategic
advantage in terms of exerting military force. True it had much lower levels of total GDP than
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did the United States during the heyday of the Cold War. The fact that it occupied the Heartland
helped bring balance to the standoff between the two giants.
With these points in mind consider Table 1. [Table 1 about here] The table makes five
points. The period 1950-1973, often referred to as the Golden Age of convergence, was a
remarkable era in economic growth when the market oriented economies in Western Europe
and East Asia closed the gap in per capita income between themselves and the United States,
converging upwards toward American levels of per capita income. Of this group of countries
converging toward American levels of per capita income, the rate of growth of per capita
income in the case of Miracle Growth Japan (1955-1975) was unusually rapid.6 Third, starting
out with lower levels of per capita income in 1950 than their market oriented competitors in
Western Europe, the Communist bloc countries failed to close the gap in per capita income
with the United States; unlike their geopolitical rivals they failed to converge toward American
levels of per capita income. Even though population growth rates for the major Eurasian allies
of the United States were lower than the population growth rates for the Eurasian Communist
bloc, the total income of the American alliance grew faster than the total income of the
Communist bloc. Finally, the most impressive growth in the non-Communist bloc occurred in
the Outer Insular Crescent, most notably in Japan.
Lurking behind these numbers are the realities of economic growth. Economies grow in
terms of per capita income because the factors of production – land, labor and capital – are
improved upon, augmented.7 For instance the further workers advance in education – the more
they are schooled in mathematics, statistics and physics - the better equipped workers are to
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innovate on the shop floor. A classic example for Japan is the role rank and file Japanese
automobile workers played in pioneering just-in-time inventory control and quality control
during the 1950s and 1960s. Again, as the health of a population improves due to public health
and medical advances - notably the diffusion of low cost antibiotics in the aftermath of World
War II – the less likely they are to miss work due to illness or disability. As for land
augmentation it is realized through a variety of avenues, notably irrigation and treatment with
superphosphate and super-nitrate fertilizers. Likewise younger capital embodies more
advanced techniques than older capital. For instance replacing open hearth blast furnaces with
basic oxygen blast furnaces linked to continuous rollout of billets and slabs as a perfect example
of augmenting capital stock.
Economies also grow because of innovation. Stemming from technological advances,
modern innovation is the application of gains in scientific knowledge to production and
marketing. The United States emerged from World War II as the global leader in innovation,
blessed with a host of new technologies – computers, pharmaceuticals, mass produced
automobiles – that it shared with its allies. For instance, firms in Japan arranged licensing
agreements with American automobile manufactures securing state of the art methods for
machining engines, producing spark plugs, casting bumpers, using sophisticated machine tools
to turn out doors and chassis frames.
The rate of innovation, of practical advances in knowledge applied to production,
contributes to total factor productivity growth, growth in output per combined unit of inputs of
land, labor and capital. The other sources of growth in total factor productivity are scale
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economies and structural change, notably a shift out of agriculture (a sector in which output
per worker is comparatively low) to a sector like manufacturing where per worker output is
higher.
Of all of the allies of the United States, Japan experienced the most rapid and
compelling rates of innovation, the highest rates of total factor productivity growth. The reason
lies in the fact that Japan – increasingly isolated from the West during the 1930s and 1940s –
lagged far behind Western Europe in applying the technological and managerial advances
enjoyed by the United States. Japan’s gap being greater, the pace of advance in catching up was
all the greater.
That Japan, like Western Europe, was market oriented mattered. It mattered because
there is nothing like the force of competition for driving improvements in product quality and
reductions in product price.
In short the non-Communist bloc, especially Japan, enjoyed the twin benefits of being
allied with the major leader in innovation and technology, the United States and of being
market oriented. The Communist bloc, saddled with central planning and mainly drawing
technology from the Soviet Union and East Germany failed to keep up.
The geopolitical implications of these hard cold facts on the ground given by Table 1 are
clear enough. The non-Communist bloc was successful in containing Communism because it
grew faster in terms of total income than did the Communist bloc. Specifically the Outer Insular
Crescent grew the fastest. Once the Sino-Soviet alliance unraveled the role of the Outer Insular
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Crescent in hemming in China on the oceans became increasingly important from a strategic
viewpoint. Chinese Communist party rulers, facing a Great Wall populated by hostile island
nations in the Pacific and facing a Soviet Union threat on its northern and western flanks, its
other Great Wall, felt increasingly vulnerable. This hard cold reality underlay China’s willingness
to negotiate with the United States during the closing years of the Maoist regime, and its
embrace of reforms beginning in 1978. By the early 1990s, China completely abandoned central
planning, opening itself up to trade with, and capital import from, the West and its East Asian
neighbors. China’s transition from central planning to market socialism through a set of reforms
designed to phase out mandated prices and introduce market prices was one of the most
important factors undermining Eurasian Communism.8
China was not alone in being squeezed by the economic prowess of the non-Communist
bloc. To keep up with the American bloc from a military point of view the Soviet Union and its
Eastern European allies were forced by dint of growing slower in terms of total income, to
increase m, the military conversion rate. This is the reality of the military power equation. At
the same time their per capita incomes were far lower than that enjoyed by the nonCommunist bloc. By 1975 the gap became a virtual chasm. The consumer in the Communist
bloc was caught between a rock and a hard place. A bigger chunk of a smaller per capita pie had
to go to building military potential. Increasingly Communism looked like a losing proposition for
the masses living in the Soviet Union and its Eastern Europe buffer zone.
Asian Capitalism Rules
12
Japan was the first major industrial giant of Asia. It became a model for other emerging
Asian industrial economies, notably South Korea and Taiwan.9 As we have seen from Table 1,
the growth of both of these economies added to the economic expansion of the Outer Insular
Crescent. What aspects of the Japanese growth experience were relevant for South Korea and
Taiwan?
One school of thought views Japan’s success during its miracle growth period, 19501975, stemming from government policy. Some scholars point to the Ministry of International
Trade and Industry (MITI), others to the Bank of Japan (BOJ). The first line of thought focuses on
industrial targeting, government intervention in arranging recession cartels and the driving
down of the costs incurred by Japanese companies in licensing patent agreements drawn up
with foreign enterprises. MITI is typically singled out for its contributions in this realm. With a
slightly different perspective, students of banking emphasize Bank of Japan policy, particularly
its willingness to allow city banks to engage in aggressive lending. Permitting the favored big
city banks to run negative reserves with the central bank (something it was not willing to do in
the case of smaller, rural banks that were under the obligation of maintaining mandated
reserves with the Bank of Japan) encouraged big city banks to invest in ambitious projects with
long gestation periods. As well the government’s Industrial Bank of Japan heavily committed to
heavy industrial enterprises is mentioned in this context. The idea is that the government
encouraged the rapid buildup of heavy and chemical industries through its aggressive
promotion of bank loans targeted to these sectors.
13
How important industrial policy was in actual practice is a matter of considerable
controversy.10 In any case less controversial is the assertion that both the governments of both
South Korea and Taiwan did borrow heavily from the industrial policy innovations developed in
Japan. Whether it was this embrace, or rather a commitment to market competition is another
matter. The decisive point is that all three nations – Japan, South Korea and Taiwan – achieved
high speed growth with a market oriented approach, government making some contribution on
the margins perhaps, perhaps not.
An important feature of Japan’s development over the long-run is the arc of total factor
productivity growth11. The idea is that the capacity to import and adapt foreign technology, the
capacity to innovate as well as imitate, depends upon augmenting the factors of production,
especially the quality of labor. Augmentation and total factor productivity are linked. Table 2
speaks to this issue. [Table 2 about here]. As the social capacity to innovate improves – either
due to infrastructure buildup, industrial policy, and/or improvements in education – the rate of
total factor productivity picks up, accelerating. Eventually diminishing returns set in.
Diminishing returns set in because the technological gap between the leading country and the
follower countries closes. Diminishing returns creep in when additional gains to the stock of
well educated workers overruns the demand for highly skilled employees.
The lesson from Table 2 is clear enough. Total factor productivity growth accelerated in
all three countries – Japan, South Korea and Taiwan – before reaching the point of diminishing
returns. That this fact was not lost of the Communist Party oligarchs in China is evident from
14
China’s record in total factor productivity growth, paltry, pathetic, prior to the inception of the
reform period in 1978, striking afterwards.
Beyond serving as a model for catch-up growth in East Asia, Japan also served as a
model of why political competition – democracy – is desirable. Both South Korea and Taiwan
eventually embraced democracy, jettisoning dictatorial quasi-military rule. Whether China will
follow in the footsteps of these three nation-states is unclear. If it does it can be truly said that
miracle growth Japan served as shining example of why a combination of democracy and
market oriented competition trumps dictatorial totalitarian rule and central planning.
In sum, Japanese miracle growth played a important role in selling the “soft” side of the
non-Communist bloc’s power, its ideology, to its East Asian neighbors.
Trade Not War
The argument of this paper is that Japan made crucial contributions to the eventual
success of the containment of Eurasian Communism. To many readers this argument may seem
paradoxical. The reason is simple: by pursuing a minimalist security policy, by building up
military potential while eschewing its actual use, Japan was reviled in many quarters for “freeriding” off the nuclear umbrella provided by the United States.12 Under the terms of the JapanUS Treaty of Mutual Cooperation and Security the United States first negotiated in 1960 the
United States made a commitment to assist Japan in resisting any foreign military aggression
aimed at Japanese territory.
15
True Japan was technically restricted in its ability to exercise military force in defense of
the Cold War alliance by its Peace Constitution. But as those individuals well informed about
Japan recognize, Japanese Constitutional revision is likely to eventually occur (and in any case
Constitutional language can always be reinterpreted), and this certainly could have occurred
during or at the end of the miracle growth period. Certainly Japan’s politicians could no longer
hide behind economic weakness, an argument that made sense in the late 1950s and early
1960s but made no sense in the 1970s and 1980s when the Japanese economy was racking up
huge trade surpluses with the United States.
There are two problems with the “free-riding” criticism of Japan.
One concerns nationalism and its capacity to unhinge an alliance system. Given Japan’s
history of military aggression on the Eurasian mainland – having fought China in the late 19th
century, having successfully defeated Russia in 1905 (though losing to Zhukov’s forces in 1939),
having taken over Manchuria in the early 1930s, having invaded China proper in 1937 – the
United States indirectly benefitted from Japan’s minimalist security approach during miracle
growth and in the decades afterward. The last thing the United States wanted to see was a
resurgent Japanese military taking action against its Asian neighbors. Allowing Japan to “freeride” off the United States permitted Japan to sell itself as a peace loving country that was
eschewing the very military aggression that haunted Asia-Pacific affairs from 1985 until Japan’s
unconditional surrender at the close of the Second World War.
The second problem concerns trade trumping military force. Japan emerged as a major
trade partner for Europe, North America and South East Asia during and after miracle growth.
16
When an economy grows it generates “gravitational pull” due to its growth in income. It creates
demand for goods produced in other countries; it creates export markets for other countries.
For example the gravity model in trade says: 13
[2]
Tii = Ø[(Yi*Yj)/dij]
where Tij = trade between two countries i and j, Yi and Yj are the incomes of the two countries i
and j respectively, dij is the distance between the two countries and Ø is a positive constant.
The idea is simple: as an economy like that of Japan’s grows it exercises a strong expansionary
pull upon other countries, particularly countries in its immediate vicinity, South Korea, Taiwan
and Hong Kong for instance.14
In short Japanese miracle growth helped integrate East Asia through markets. Moreover
Japan served as a model for East Asian growth more generally. Channelling the poetic notion of
the “flying geese” pattern of trade in which a lead industry – say labor intensive cotton textiles
– cuts the wind for the follower geese (say toys, later on machinery), Japan pioneered the
product cycle pattern of trade in East Asia.15 In the product cycle a country moves from being a
net importer of a good, to being a zero net importer of the good (through substituting domestic
production for imports), to net exports (through export promotion), and finally back to being a
net importer as the industry producing the good moves elsewhere. Key to the product cycle is
moving from import substitution to export promotion.
As Table 3 demonstrates East Asia has become the world’s more dynamic region in
terms of trade. [Table 3 about here]. The reason lies in the product cycle, in driving down
17
domestic prices for goods that were once imported on net until they reach international price
levels (or, ideally, fall below international price levels, establishing a new low international
price). Japan did this in industry after industry, moving from textiles to lightly manufactured
consumer goods to iron and steel and then on to machinery and machine tools. The key was
domestic competition harnessed to the import and adaption of foreign technology driving
down domestic prices. Contrast the implications of the pattern pioneered by Japan, followed by
South Korea and Taiwan, and later on by China after 1980 with the experience of Latin America
where import substitution led to more import substitution rather than export promotion. Latin
America’s record in expanding trade appears pathetic when compared to Asia’s shining success.
16 In
pioneering “flying geese” type Japan was the sparkplug for dynamic Asian trade, striking in
its vigor particularly when contrasted with Latin America’s anemic performance.
Countries that develop deep trade relations with one another are less likely to fight wars
with one another. By initiating a model of trade followed by other Asian countries, Japan’s
emphasis on trade not military posturing helped promote detente in the East Asian periphery of
the Eurasian land mass.
Conclusions
The argument of this paper is simple: Japanese miracle growth was an important driving
force in the successful containment of Eurasian Communism. It was a driving force because it
helped erect a Great Wall limiting Communist expansion into the Pacific. This was geopolitics
with a vengeance. It was a driving force because it established the principle that markets trump
central planning and democracy is fully consistent with rapid economic growth. And it was a
18
driving force because it emphasized the importance of trade as an alternative to war.
Unheralded perhaps due to the accusation of “free-riding” on its military alliance with the
United States, Japan’s role in the Cold War was actually crucial.
19
Endnotes
[1]
For a recent account of how geopolitics operates, see Robert Kaplan, The Revenge of
Geography: What the Map Tells Us About Coming Conflicts and the Battle Against Fate
(New York: Random House, 2012). For the importance of nationalism and the spread of
the nation-state system in the twentieth century, particularly during the post-1945
period, see Carl Mosk, Nationalism and Economic Development in Modern Eurasia (New
York: Routledge, 2013).
[2]
One reason why the American alliance system was more stable than that of the Soviets
lies in trade. Centrally planned economies operate with politically mandated prices
determined through national planning bureaus. Market economies operate with prices
shaped through the forces of supply and demand operating in international markets. It
is much easier to integrate through the force of the invisible hand than through the
force of barter type arrangements negotiated between over and over by politicians.
After all in a centrally planned economy bureaucrats are continually tinkering with
mandated prices. With relative prices constantly being adjusted in each country and
without the force of the invisible hand operating, negotiation between Communist
countries must be continual, ongoing and often contentious.
[3]
See Halford Mackinder, Democratic Ideals and Reality: A Study in the Politics of
Reconstruction (New York: H. Holt and Company, 1942). Mackinder was actually writing
during World War I and its immediate aftermath. The volume cited here is a reprint of
the original published in 1919.
20
[4]
Quoted from Kaplan (2012): page 74.
[5]
For details concerning this equation, see Mosk (2013), pp. 247-249.
[6]
The figures in Panel A are a subset of those given in Carl Mosk, Japanese Economic
Development: Markets, Norms, Structures (New York: Routledge, 2009), Table 7.1, pp.
224-225. The table in the source features figures for a larger number of Western
European and Communist bloc countries that substantiate in greater detail the point
made in the text.
[7]
For details on the role augmentation plays in driving economic growth, see Carl Mosk,
Traps Embraced or Escaped: Elites in the Economic Development of Modern Japan
(Singapore: World Scientific, 2011).
[8]
For details, see the comprehensive account given in Barry Naughton, The Chinese
Economy: Transitions and Growth (Cambridge, MA: The MIT Press).
[9]
For South Korean economic growth, see Alice Amsden, Asia’s Next Giant: South Korea
and Late Industrialization (New York: Oxford University Press, 1989).
[10]
On the pluses and minuses of industrial policy in Japan, see Mosk (2009), pp. 272-285.
[11]
See Mosk (2011), pp. 237-243.
[12]
For an excellent analysis of these issues see Hamada and Mimaki, “The ‘Yoshida
Doctrine’ in the post-Cold War: ‘preemptive’ minimalist strategy in a multipolar world,”
in Koichi Hamada, Keijiro Otsuka, Gustav Ranis and Ken Togo, Miraculous Growth and
21
Stagnation in Post-War Japan (New York: Routledge, 2011), pp. 135-165. The United
States benefitted from its arrangement with Japan in the sense that it could maintain
military bases on Japanese soil, particularly in Okinawa where about 20% of the land
area is under American military control. From the American military point of view using
Okinawa as a potential launching pad for carrying out strikes against China and the
Soviet Union did reduce the cost of exerting military force against Communist
adversaries on the Eurasian land mass.
[13]
For a discussion of the gravity model of trade that embeds it into a consideration of
geopolitical factors, see Carl Mosk, Trade and Migration in the Modern World (New
York: Routledge, 2005).
[14]
The parameter Ø reflects a variety of real world factors, including policy. For instance,
before China opened up to active trade with the rest of the world during the 1980s and
Taiwan the value of the parameter for China’s bilateral trade with other countries would
be miniscule.
[15]
For figures documenting prewar Japan’s product cycle trade pattern see Carl Mosk,
Japanese Industrial History: Technology, Urbanization, and Economic Development
(Armonk, N. Y.: M.E. Sharpe, 2001), pg. 184.
[16]
On the contrast between the East Asian and Latin American trade patterns, see Gustav
Ranis, “Typology in Development Theory: Retrospective and Prospects,” in Gerald Meier
22
and James Rauch, Leading Issues in Economic Development. Eighth Edition, (New York:
Oxford University Press, 2005), pp. 146-150.
23
Table 1: Convergence and Geopolitical Containment, 1950-1975
Panel A: Convergence in levels of per capita income
Real income per
capita in 1950
(international
Geary-Khamis) $
Country
Growth rates for real per capita
income and population, 1950-1973
Per capita
income (%)
Population (%)
Real per capita
income in 1973
(international
Geary-Khamis) $
Various market oriented economies
Japan
1,873
8.0 %
0.7
11,017
France
5,221
4.0
1.0
12,940
United Kingdom
6,847
2.5
0.5
11,992
Australia
7,216
2,4
1.4
12,485
United States
9,573
2.4
1.0
16,607
Various centrally planned economies
China
614
2.9
1.5
1,180
Romania
1,182
4.8
1.1
3,447
Poland
2,447
3.4
1.3
5,334
Soviet Union
2,834
3.4
1.4
6,058
Panel B: Indices for real income (GDP), 1955 = 100
1955
1960
1965
1970
1975
Communist Bloc: Warsaw Pact (Heartland-Rimland alliance) (a)
100
137
164
205
241
183
229
199
238
Communist Bloc: China (Rimland)
100
128
144
Entire Eurasian Communist Bloc
100
135
158
24
Table 1 (Continued)
Panel B: Indices for income (GDP), 1955-1975, Continued
Non-Communist Bloc: Rimland-Outer Insular Crescent alliances
1955
1960
1965
1970
1975
187
214
NATO-WEU alliance (b)
100
123
153
Rimland (CENTO) – minus United States and Turkey (c)
100
140
199
309
458
192
224
Total: NATO-WEU plus CENTO
100
124
155
Outer-Insular Crescent Non-Communist Bloc (minus United States and Canada), 1955 = 100
Japan
151
236
407
509
South Korea plus
Taiwan
128
185
308
507
ANZUS (minus
United States) (d)
122
156
198
237
Total
142
211
346
441
Non-Communist Bloc (Sum of NATO-WEI, CENTO, Japan, South Korea, Taiwan and ANZUS
100
127
165
25
219
262
Table 1 (Continued)
Panel C: Ratios of total incomes (GDP totals) in blocs (%)
1955
1960
1965
1970
1975
Eurasian Communist bloc/Non-Communist bloc
59%
62%
56%
53%
53%
Heartland-Rimland Communist bloc/NATO-WEI plus CENTO bloc
51
57
54
55
55
China/Outer Insular Crescent Non-Communist bloc (Japan, South Korea, Taiwan, and ANZUS)
93
84
64
49
48
63
63
China/Japan
141
120
86
Sources:
Angus Maddison, The World Economy. Volume 2: Historical Statistics
(Paris: O.E.C.D., 2006), various tables) and Mosk (2009). pp. 224-225.
Notes:
(a) Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, Romania,
and the Soviet Union. GDP for East Germany computed by multiplying
value for Germany as a whole by .138 (taking 13.8%), a percentage
obtained from figures given in Maddison (2006).
(b) North American Treaty Organization plus Western Economic Union.
Membership includes Belgium, Canada, Denmark, France, West Germany,
Greece, Iceland, Luxembourg, Netherlands, Norway, Portugal, Turkey, the
United Kingdom and the United States. GDP figures for Iceland and
Luxembourg were not included and the figure for West Germany was
computed by taking 86.2% of the value for Germany as a whole.
(c) Membership consists of Iran, Iraq, Pakistan, Turkey and the United
States. The GDP figures used are totals for Iran, Iraq, and Pakistan as
Turkey and the United States are included in the NATO-WEU bloc.
(d) Membership includes Australia, New Zealand and the United States.
The GDP totals are for Australia and New Zealand as the United States is
included in the NATO-WEU bloc.
26
(e) The Outer Insular Crescent totals are for Australia, Japan, New
Zealand, South Korea and Taiwan.
Table 2: Market Oriented Economic Development Trumps Central Planning
Panel A: The Arc of total factor productivity growth in Japan
Total factor productivity growth rates (%) for various periods, 1888-1990
1888-1900
1900-1920
1920-1937
1928-1937
1958-1970
1970-1990
0.2%
0.3%
1.1%
2.0%
4.4%
1.7%
Panel B: Total factor productivity growth rates (%) for various periods in South Korea, 19701999
1970-1980
1980-1990
1990-1999
-1.0%
2.5%
1.1%
Panel C: Total factor productivity growth rates (%) for various periods in Taiwan, 19601999
1960-1970
1970-1980
1980-1990
1990-1999
1.7%
0.3%
3.2%
2.7%
Panel D: Total factor productivity growth rates (%) for various sub-periods in prereform and post-reform periods in China
Pre-reform (1952-1978)
Post-reform (1978-2005)
1952-1978
0.5%
1978-2005
3.8%
1952-1957
4.7
1978-1985
3.2
1957-1978
-0.5
1985-1990
3.1
1957-1965
-1.0
1990-1995
6.7
1965-1978
-0.2
1995-2000
3.2
27
Sources:
Mosk (2011), pp. 238-241.
Table 3: Japan’s Miracle Growth is the Sparkplug for Asian Trade Expansion, 1950-1973
Export indices for various regions of the world economy, 1870-1998
(For each period the value of trade at the end of the period is computed as an index with the
value of trade at the beginning of the period = 1)
Region
1870-1998
1870-1913
1913-1950
1950-1973
1973-1998
Western Europe
76.8
3.9
1.0
13.2
1.6
Western offshoots
283.2
7.2
2.3
9.1
1.9
Eastern Europe and
Former Soviet Union
112.9
4.2
1.7
11.3
1.4
Latin America
105.6
4.0
2.3
5.5
2.1
Asia
225.4
3.3
1.8
21.1
1.8
Africa
6.6
6.3
2.0
3.4
1.6
World
115.5
4.2
1.4
11.7
1.7
Source:
Mosk (2013), pg. 235.
Notes:
(a) The Western offshoots are Australia, Canada, New Zealand, and the United
States.
28