Post-war economic recovery

The outbreak of the Korean War in 1950 provided an important boost to the Japanese economy, as the country became the principal supplier of food and arms for the US armed forces. During this period industry was restructured, new factories were equipped with the latest machinery, and millions of former soldiers rejoined the workforce, with the result that by 1955 industrial output had returned to its pre-war level. The increase in living standards and social changes which accompanied the economic growth of this period helped to reinforce the position of the ruling Liberal Democratic Party (LDP), which was to hold power in Japan for the next four decades.

Between the late 1950s and the 1980s the Japanese economy grew at a phenomenal rate, averaging annual growth rates of around 10 per cent. This may partly be attributed to the overall global economic expansion generated in the decades after the war as a result of the application of free trade principles. But other important contributing factors were also at work, notably the distinctively Japanese way of coupling largely private ownership of assets with conservative, public-spirited management, and the role of government in taking account of the social and economic context by selecting and nurturing industries regarded as important to Japan's future economic growth. In this way, the focus of development was on chemicals, iron and steel, shipbuilding and transistor radios during the 1960s, on automobiles and electronics during the 1970s, and on computers, computer chips and other high-technology industries during the 1980s.

Japan's acclaimed post-war education system, with its high educational standards and strict discipline, was another important factor in Japan's spectacular post-war economic success, since it helped to create an efficient and effective work force.

The oil crisis of 1973 underscored Japan's dependence on world trade and lack of domestic energy supplies, hastening an increasing, but unpopular commitment to nuclear power. After an initial downturn in economic growth the crisis set Japan on a new path, downgrading energy-intensive, polluting industries in favour of cleaner, high-tech ones. The second oil crisis of 1979 hardly affected Japan, now a world leader in energy-saving technology.