Book Summary

East Asia and the Global Economy.
Japan’s Ascent, with Implications for China’s Future.

By Stephen G. Bunker and Paul S. Ciccantell

This work stands out amongst academic examinations of Japan’s post WWII economic development: it looks at the hard facts first and theorizes later. The authors paint a powerful factual framework to describe how Japan, a small island-nation that lacked adequate domestic supplies of virtually all the raw materials essential for industrial production, became the world leader in steel making, shipbuilding and heavy industry. In the process, Japan restructured the world economy by globalizing regional industries such as of coal and iron ore extraction, and created a model of economic development that China would later emulate. This raises two fundamental questions. Based on Japan’s experience, what lessons can we draw about China’s future? Conversely, can Japan take advantage of the spectacular ascent of its neighbour to rejuvenate itself?

In 1960, seaborne petroleum, coal, iron ore and bauxite trade totalled 2,093 billion ton-miles, twenty years later Japan’s restructuring of the world economy would push that figure to 11,015 billion-miles, an increase of 426%. The authors argue that each sequential case of ascent to hegemonic status -- Portugal, Netherlands, Britain, US, China/Japan? -- depended on sequential increases in control of raw materials peripheries, which would fuel the rise of key “generative” sectors. Japan’s very success was based on the organization of its steel industry to provide low-cost inputs to a wide range of heavy industry (e.g. auto manufacturing), which had the effect of increasing global competitiveness. Cooperation is essential amongst political, economic and social groups to create these “generative” sectors because of the inherent contradictions between economies of scale and diseconomies of space. In other words, as Japanese technological advances created increasing scales of steel production, the challenge was to deal effectively with the escalating costs of sourcing raw materials from increasingly large and distant mining operations. The authors describe how state-sector-firm cooperation was essential to decrease the costs of transport (innovations and scale in the shipbuilding industry) and to secure supply of low-cost raw materials in extractive peripheries including Australia, Brazil and Canada through the use of long-term contracts and joint-venture agreements.

Chapter 2 introduces the theoretical framework of historical materialism and explains the importance of “generative” sectors and the importance of solving contradictions between scale and space. Chapters 3, 4 and 5 describe the physical characteristics of iron ore and metallurgical coal; the technical aspects of achieving incremental economies of scale; the role of MIDA in creating tightly integrated deepwater ports incorporating steel mills, shipyards and automobile plants; the formation of extractive peripheries and the bargaining strategies used by MITI to transfer the risks and costs of supplying cheap coal and iron ore. Chapter 6 focuses on the role of the shipping industry in creating economies of scale and reducing the costs of transport. Finally, chapter 7 discusses how Japan’s successful developmental model eventually led to the economic malaise of the “lost decade(s)”. More importantly, the last chapter addresses some emerging parameters of the 21st world economy, in particular the manner in which China is replicating Japan’s developmental model, importing its technology and benefiting from the Japan-made global raw materials network.

There are two central, yet widely ignored, insights in this work. First, the authors are right in pointing out that sustained economic ascent can only be achieved when raw materials and transport industries are the cornerstone of national policy and the focus of state-firm coordination. Second, it is not widely understood that China is in fact replicating the Japanese developmental model, one that has already proven successful in the past. Indeed, the Chinese government is busy creating “generative” sectors in steel making and coal by building state-of-the-art coastal steel mills using Japanese technology while importing the lowest cost raw materials from abroad. As a result, China is today the world leader in steel production, both in volume and costs. However the authors rightfully point out that following the models of earlier ascendant economies does not guarantee success, in part because the outcome is highly contingent on the strategies of other competing economies, and in part because of the need to create a dynamic and unified state-sector-firm strategy.

A factor that is not directly addressed by the authors however, is that the scale of the raw materials challenge in China is an order of magnitude greater than Japan’s ever was; indeed, the former has ten times the population and thirty times the territory. And while China is busy integrating new regions into its raw materials peripheries (especially in Africa), it is questionable whether the raw materials challenge can be effectively resolved without devising a new strategy. Obstacles include the growing scarcity of low-cost fossil fuels and metals reserves across the globe, the increased consolidation of oil & mining industries into oligopolies that can extract larger rents and the environmental impact of coal and metals mining and processing in China. At the rate it is currently growing, China will eventually make oil, coal and industrial metals cost-prohibitive and will have to begin looking at technological solutions to improve resource efficiency. Interestingly, Japan is the world leader in this field, having successfully resolved its own environmental crisis and today boasts the highest energy and resource productivity amongst OECD countries. Convexly, if China creates a world of 200$ oil/coal/iron ore, Japanese society will suffer and political/economic reform will become inevitable. Despite its economic malaise, Japan has changed little in the past twenty years; the tremendous success of its post WWII development period depended on the very rigidity and cohesion of its socio-economic institutions which are today the source of its low competitiveness and dysfunctional financial system. Its failure to take full advantage of the size of its next-door neighbour’s population as an engine for growth is a testimony of its inability to achieve reform. It is possible then to envisage a future where Japan and China become increasingly integrated economies, at last lifting Japan from twenty years of self-imposed economic stagnation.