In discussing the economic change and technological progress since the end of World War II, we start with a historical overview: those familiar with Japan's post-war economic and political history could skip this section.
The impact of World War II on the Japanese economy was, needless to say, devastating. The production index in manufacturing fell to 26 per cent of the pre-war peak level ( 1934-6) in 1946 and the supply of food fell to 51 per cent. Even though about two-thirds of the plant and equipment built before and during the war remained intact, shortage of fuel, materials, and intermediate goods made continued production extremely difficult. Inflation caused by the decreased production and increased money supply was getting out of control: the consumer price index rose 195.2 per cent a year in 1947.
Some of the policies and changing external conditions helped the Japanese economy to recover from the post-war difficulties and to transform itself to an economy with sustained fast growth from the mid- 1950s to early 1970s. Some policies were aimed at the supply side, for instance, to increase production by providing subsidies and other preferential treatment, especially to the coal and steel industries, called the Priority Production Policy (see Chapter 7). Other policies, such as price control, were intended to curve inflation. The price control, not surprisingly, caused black markets to spread and was often inconsistent with the supply-side policies. Nevertheless, the production level gradually recovered, and the production index in mining and manufacturing regained the pre-war level by 1951 while the annual rate of increase in consumer price index slowed down to 50.2 per cent in 1948.
In 1949, a series of drastic policy measures were implemented to contain inflation. These measures were called the Dodge Line after