I am reading a most delightful book. It’s Confucius Lives Next Door: What Living in the East Teaches Us About Living in the West by T. R. Reid, published in 1999. He was the Tokyo bureau chief of the Washington Post. He and his family spent a few years in Japan in the 1990s.
Here’s an except from chapter 2 “Eastern Flavor”:
[The] Asian renaissance began in Japan. Japan’s almost unbelievable turnabout from total rubble to vast riches—achieved in about half a lifetime—became the great dream and the model for all the rest of the Orient. In Japan, they called it the sengo kiseki—the postwar miracle. Personally, I like that term, because it seems to me indeed a miracle that the Japanese were able to claw their way back from the self-inflicted disaster of World War II that destroyed their country.
Perhaps you’ve seen the photographs of those shocked, weeping masses of Japanese people listening to their emperor’s radio broadcast of August 15, 1945. War-weary, starving, sick, and sad, people dressed in makeshift smocks made from old newspapers sank to their knees and bowed their heads when they heard—virtually all of them for the first time—the imperial voice croaking through the static.
Hirohito didn’t tell his subjects all that had happened: that the Japanese empire had been completely lost, that the Imperial Army and Navy were totally destroyed, that five million Japanese had died, that thirty million had no homes, that every Japanese city was a wreck, that there was virtually nothing left to eat and no intact roads or railroads to deliver food even if there had been some, that once-proud Japan was the most despised nation on earth, that millions around the world had cheered when atomic bombs were dropped on Japanese cities, and that an occupation force of enemy soldiers would soon arrive to run the country.
Rather, the emperor set forth the state of things in a classic piece of Japanese understatement: “The situation has developed not necessarily to Japan’s advantage.” No, not necessarily.
By August of 1945, Japan had nothing. Its formidable prewar industrial base was gone; even in remote areas, nearly every factory was destroyed. Railroads had been shattered so badly—partly by U.S. bombs, and partly by the Japanese military, which ripped up the rails to make artillery shells—that there were few stretches in the whole country where a train could transit more than ten miles.
And to make matters worse, the island nation had no natural resources to fall back on. A series of volcanic islands with few natural resources, Japan has never had any measurable amounts of petroleum, iron ore, aluminum, copper, or other minerals. The war years had used just about all coal and timber reserves. There was no food—people were so hungry they ate the bark off all the ginkgo trees—and there wasn’t enough land in the entire country to grow enough food to feed everybody. Japan was a ruined nation, with no resources at home and no friends anywhere.
That was 1945. Ten years later, Japan was still one of the poorest third-world countries. Hats in hand, a delegation from Tokyo approached the World Bank in 1955, seeking a loan of a few million dollars to build a new transit project, the “bullet train,” which would race at high speeds between Tokyo and Osaka. The bankers thought about it and gave their answer: No. The country known in the West as little Japan was too poor, they concluded, and too backward to carry off such a high-technology endeavor.
Thirty years later, in the mid-1970s, when my wife and I first lived there, Japan was no longer desperately poor, but it was hardly rich. In the southern city where we lived, Kumamoto, there were still war ruins lying around, because nobody could afford to clean them up. We signed up for telephone service the day we moved into our little house and were asked to wait a few days until the local utility could get a shipment of phones. We were still waiting more than a year later. The stores and businesses in downtown Kumamoto turned their neon signs off about nine o’clock because the country didn’t have enough fuel to provide electricity through the night.
In 1975, Japan’s per capita income—roughly speaking, the amount of money a single worker makes in a year—was about one-third the figure for the United States. But by 1975 the foundation for growth was firmly in place. Since then, Japan has lived the miracle. Today, this crowded, isolated island country with no natural resources is a global economic superpower.
It is the home of eight of the world’s fourteen biggest banks and two of the four biggest securities firms. It is the world’s biggest maker of steel, ships, home electronics, and countless other high-tech products. Even now, after a long recession, the Japanese are rich; the country’s per capita income is the same as America’s.
Tokyo in the 1980s became the world’s number one market for firms like Gucchi, Chanel, Rossignol, and other makers of luxury goods. Today the neon signs—huge, absurdly bright and colorful neon signs—flash and gleam all night long in every city. Today sleek bullet trains race the length and breadth of the Japanese archipelago.
One day in 1993, aboard the fastest train from Tokyo to Osaka, I met a European gentleman who told me he worked for the World Bank. Hat in hand, he had come to Japan to ask for a few billion dollars to beef up the bank’s assets. He had gone to the right place, because Japan is the world’s biggest donor of foreign aid to poor nations, and the world’s leading lender to rich ones.
The United States is also a country of vast wealth, but it happens to be deeply in hock to Japanese lenders. Japanese banks, insurance companies, and government agencies have loaned so much money to Washington—about $500 billion—that when Japan’s prime minister vaguely suggested one day in 1997 that his countrymen might want to sell their U.S. Treasury bonds, the Dow-Jones average fell 200 points, which was then Wall Street’s biggest drop in a decade. (The prime minister quickly announced that he didn’t mean it, and the market went back up 150 points the next day.)
It was a miracle, all right. Japan’s economy has performed in considerably less than miraculous fashion for most of the past decade—and even so, the country has easily maintained its position as the world’s second-richest nation. Judged by the economic data, no country in history has come so far so fast.
Remember the book was published 20 years ago. China’s growth story is also fascinating, although for different reasons. But both China and Japan have one factor in common: the United States of America. Japan could not have recovered so fast from the devastation it suffered in the Second World Wars without the assistance it got from the US. China would not have become the manufacturing giant it became without access to US technologies and US markets.
There’s another feature — perhaps more salient — that’s common to both of the countries: the Confucian ethic. Economic development is not mono-causal; there are many factors, most of them contingent. Culture is perhaps the most important factor.
That culture matters so enormously for economic development is easy to understand if one analogizes culture to character. Culture is to a nation what character is to a person. Character is destiny (modulo luck); culture is destiny too.
Another book which I am reading has a lot to say about the relationship between culture and economic growth. It’s by Joel Mokyr — A Culture of Growth: The Origins of the Modern Economy (2016). I like Mokyr’s analysis. Highly recommended if you’re interested in understanding why some countries fail to develop.
I have always looked upon culture as the important explanatory variable. This bias originates from my firm conviction that cultures not only differ but that some are superior to others. People differ in their character, and some people have better characters.