The Role of Institutional Changes in the Growth of Postwar Japan

The usual explanation for the rapid growth of Japan in the postwar decades relies on the dualistic mechanism -- the cheap labor supplied by the low-wage sector to the more modernized sector which importing new technologies from the West is able to supply cheap industrial products in the international markets. While recognizing that dualistic theory maybe part of the explanation for the postwar growth of Japan (which was four times more rapid in terms of per capita GNP and total factor productivity that in the prewar decades), there is much more to said. This paper argues that the demilitarization and democratization policies initiated by the Allied Occupation Powers, modified, extended and implemented by the Japanese cannot be ignored by economists in attempting to explain the faster pace of growth of postwar over prewar Japan. Accordingly, the major portions of the paper describe the institutional changes brought about by the destruction of the authoritarian structure in agriculture and the rural sector, in industrial organization and industrial relations, in social and political structure and speculate about how these institutional changes affected the growth of postwar GNP.