In 1945 Japan had been bombed out of existence. Even by 1947, the first postwar year for which national income data are available, output was not much more than half the level reached during the war and output per worker was only about one-sixth of that of the US. Since then productivity has grown nearly ten-fold and now, in 1989, equals or even on some measures exceeds that of the US. The performance of Japanese exports is even more startling. Since 1950 they have multiplied in volume almost seventy times. As a result, Japan, which was a country facing balance of payments difficulties in the 1950s and early 1960s, moved into structural balance of payments surplus in the early 1970s.
The question is, how did this extraordinary achievement occur? There is no simple answer, but part lies in Japan's early history, part in the institutional structure, and part in the events and policies, both internal and external, of the postwar years.
When Commodore Perry sailed into Tokyo bay in 1853, he found a country which had already taken the first steps towards the creation of a modern economy. Although Japan was poor in natural resources and had been cut off from contact with most of the outside world since the 1630s, she had developed some modern commercial institutions. To be sure, the standard of living of the ordinary Japanese rose only slowly during this period, but it did provide a solid base on which the new rulers, who took over after the Meiji Restoration of 1868, could build. Determined that they were not going to be dominated by the expanding countries of the west either economically or militarily, they sought to make Japan fukoku kyohei, a wealthy country with a strong army and navy. They arranged for the importation of foreign know-how in the industrial, military, and academic spheres. Over the next few decades, they set up factory industries, based largely on