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Historical Development, Postwar Devastation and Reconstruction

zaibatsu, keiretsu, occupied Japan, new priority, Union of Soviet Socialist Republics

When World War II ended in 1945, one-quarter of Japanís buildings lay in ashes. GDP was only one-third of its prewar level. Riots broke out among people who were barely surviving on 1,000 calories worth of food per day. To get recovery started, the government instituted a ďpriority productionĒ system, subsidizing the manufacture of basic products such as coal, fertilizer, steel, and electricity. Japanís economy did not return to its prewar GDP levels until 1955.

The United States, one of Japanís opponents in the war, occupied Japan militarily and controlled economic policy from 1945 to 1952. At first, the occupation authorities embraced economic democratization as their first priority. They introduced land reform and permitted workers to unionize. They also broke up the zaibatsu, which owned 40 percent of all equity (stock) in Japanese companies. By the late 1950s, however, the zaibatsu were reforming. The groups of affiliated companies were now called keiretsu, and banks, rather than rich families, stood at their core.

The rise of the Cold War in the late 1940s pitted a bloc of countries led by the United States against another bloc led by the Union of Soviet Socialist Republics (USSR). With the new international situation, occupation authorities adopted a new priority: to make Japan into a strong ally for the United States. The change in policy became known as the reverse course. To promote economic growth, the United States provided financial assistance and opened its markets to Japanese goods. In 1950 the Korean War broke out, and the U.S. military began buying supplies from Japan, creating enormous demand for Japanese goods. Economic recovery exploded to 12 percent growth per year from 1950 to 1952. In 1952 Japan regained its sovereignty and the U.S. occupation of Japan ended.

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