The state guided growth by choosing key industries, steering savings to them and protecting them while they grew.
The Ministry of International Trade and Industry (MITI), created in 1949, led industrial policy. It chose industries for growth: first steel, shipbuilding and chemicals, and later cars and electronics.
MITI had real power in the 1950s and 1960s. It controlled access to foreign currency and approved licences to import foreign technology. It also gave "administrative guidance", informal advice that firms usually followed.
The state steered savings into industry. Money saved in the postal savings system was lent through government programmes and the Japan Development Bank. The Ministry of Finance kept interest rates low so firms could borrow cheaply.
Protection gave young industries time to grow. Imports of cars and other goods were restricted until the 1960s, and foreign firms found it hard to invest in Japan.
In 1960 Prime Minister Ikeda launched the Income Doubling Plan, which aimed to double national income in ten years. The target was met in about seven.
Policy did not always succeed. In the early 1960s MITI wanted to limit the number of car makers. Honda went ahead anyway and became a major car maker.
- MITI
- Created 1949; led industrial policy.
- Income Doubling Plan
- 1960: target met in about seven years.
- Administrative guidance
- Informal advice that firms usually followed.
Worked example: Assessing MITI
How much did government policy matter?
- Strong case: MITI chose winners and steered cheap credit to them.
- Evidence: steel, ships, cars and electronics became world leaders.
- Weak case: some successful firms resisted MITI.
- Judgement: policy mattered most in the 1950s and 1960s, then declined.
Watch out for this
MITI planned the whole economy like a communist state.
Japan stayed a market economy. MITI guided private firms through incentives and advice, and firms competed fiercely with each other.
Check your understanding
How did the state steer savings into industry?
- Postal savings were lent through government programmes to priority industries.
- It took all private savings by law.
- It borrowed heavily from foreign banks.