Economic miracles and the making of a postmodern society 2

Very quickly, MacArthur’s plans turned from demilitarization and democratization to re-militarization and economic stabilization.
The USA now wanted Japan to become its Pacific ally in the global fight against communism. Hence, SCAP instigated a ‘Red Purge’ that removed 13,000 people from politics and business on the basis
that they were ‘impeding the goals of the occupation’, which had been the same justification used during the purge of the political right. In some cases, the reverse purge literally resulted in the
reinstatement of the original wartime occupant of a post. At the same time, MacArthur abandoned his campaign against the zaibatsu, which was taking much longer than expected and was seriously damaging the economy. And finally SCAP pushed the Japanese government into establishing its own paramilitary
National Police Reserve in 1950, which would eventually form the basis of a more substantial military force: in 1952, it became the National Safety Agency, and then in 1954 the Self-Defence Forces were established, which remains the name of Japan’s army, navy, and air force to this day. The question of whether these military forces abrogated (and continue to contravene) Article 9 of the 1947 constitution remains hotly debated today.

The final issue for the occupation forces was the overall health of the Japanese economy. Between 1945 and 1949, inflation had been rampant and out of control, seriously undermining economic and political stability, and raising fears in Washington that the people of Japan would be pushed into the arms of communism.

Above all, the capitalist block should build its defence against the communists with a wall of prosperity: a ‘crescent of affluence’ would contain communist expansion in Asia. The proposed solution was to call in the Detroit banker and auto-executive, Joseph Dodge, to reorganize the economy and attempt to get Japan back on its feet. The so-called ‘Dodge Line’ was basically an austerity plan, which dramatically cut public spending (abolishing state subsidies and loans, and sacking over 100,000 public

employees), decentralized control of foreign currency, and fixed a very favourable exchange rate between the yen and the dollar (360:1) to promote exports. The exchange rate, which increasingly

undervalued the yen, was fixed until the 1970s.

Whilst the Dodge Line succeeded in bringing inflation under control, there was every sign that it was going to kill Japan completely. Then, in 1950, Prime Minister Yoshida received a ‘gift from the gods’: the Korean War. The ‘blessed rain from heaven’ came in the form of 2 billion dollars’ worth of war

procurements (which amounted to 60% of Japan’s exports over the next three years); exports tripled, production rose by over 70%, and Japan’s GNP grew at 12% per annum. Rather than the Dodge Line, it was the Korean War boom that laid the foundations for Japan’s remarkable (even miraculous)

economic growth over the next 20 years. At the start of the war, Japan’s GNP stood at only 11 billion dollars. By the mid-1950s, it had grown by 250%. By the early 1970s, at over 300 billion, it was

the third largest economy in the world (behind the USA and USSR).

Indeed, Japan’s sudden and profound economic growth, combined with the establishment of its 1947 constitution and the beginnings of a military force, meant that the occupation was drawn to a close much earlier than anyone expected. In September 1951, in San Francisco, representatives of 48 nations signed the official peace treaty with Japan, bringing an end to the occupation in April of 1952, just seven years after it had begun. In order to facilitate the rapidity of this move, the USA made separate defence agreements with other key allies in the Asia-Pacific, and also provided for the possibility that Japan’s Asian neighbours would be able to negotiate reparation agreements on their own terms afterwards. For Washington, it was important to end the expensive occupation of Japan as quickly as possible, and to establish Japan as a key ally in the hot Cold War in Asia. To this end, only a couple of hours later, Japan and the USA also signed the US–Japan Security Treaty, which continues to tie the USA to the defence of Japan to this day. 

For various reasons, the San Francisco Peace Treaty was controversial. A number of nations, including Britain, complained that it was not sufficiently harsh on Japan, and that it should at least have provided for reparation payments to the victims of Japanese imperialism. For the USSR and its European

partners, the provision to leave US troops in Japan after the occupation was particularly offensive, and they refused to sign the agreement. And finally, neither China nor Taiwan were even invited to the conference, since it was not yet clear which one would be recognized as ‘the one China’. In Japan itself, there were mixed feelings about the terms of the peace. On the one hand, the Japanese were pleased and relieved to be regaining their sovereignty, but it appeared to be only a partial sovereignty, since the USA would retain military bases in Japan and would also keep control over the islands of Okinawa for the foreseeable future (in the end, until 1972). In addition, the US–Japan Security Treaty looked like a double-edged sword, providing a militarily vulnerable Japan with a level of protection, but at the same time implicating Japan in US foreign policy and potentially dragging Japan into other US

conflicts. The complexities of this settlement would haunt Japanese foreign policy for many decades.