3.1 The Japanese miracle

POST-WAR overseas investment by Japanese corporations began in the mid-1960s, when Japan experienced a major sustained burst of rapid economic growth. Japanese textile, electrical appliance, and food-processing industries began production in Taiwan, South Korea, Hong Kong, and other Asian countries. In most instances, the manufacturing was undertaken by factories subcontracted to produce parts and components for parent companies in Japan. In the synthetic textile and auto industries, Japanese companies supplied raw materials or auto parts to their subsidiaries in the host countries, where finished goods were produced and sold in local markets. These operations were financed by Japanese 'export-substitution' investment, designed to replace the export of finished goods from Japan by local production. In every case, Japanese direct investment in manufacturing in these industries and countries was designed to exploit cheap Asian labour.

Japanese overseas investment in the mid-1960s featured small amounts of capital committed per project and a concentration in the light industries. Consequently, these Japanese manufacturing operations competed with already-developed local industries, driving them out of business. In particular, since a large part of Japanese direct investment overseas was located in Asia (Table 3.1), the Japanese presence in the region was strongly resented and attacked. Popular opposition to the penetration of Japanese corporations culminated in 1974 in the massive anti-Japanese uprisings which broke out in Indonesia, Malaysia, the Philippines, and Thailand.

TABLE 3.1 Trends in Japan's Direct Overseas Investment (US$ million)

Source: Ministry of Finance, Japan.
¹Year-end.

That same year, at the United Nations, the developing countries of the 'South' demanded that the industrialized countries of the 'North' establish a 'new international economic order'. Translation al corporations reacted to this request by creating a 'new international division of labor'. In response to these criticisms of Japan from Asian countries and the emerging international consensus in favour of a new economic order, Japanese corporations launched an attempt to develop a Japanese version of the new international division of labour. This effort evolved into the Pacific Basin Economic Cooperation concept

The rapid economic growth of the 1960s was driven by expansion of energy-consuming industries based on lavish use of cheap Middle East oil. The leaders of this spurt in growth were the raw material processing industries. Iron ore, copper ore, bauxite, and other minerals, as well as lumber and petroleum, were imported in huge volumes and processed in Japan. From 1963 to 1973, Japan consumed much more raw materials than the Western economies. In that period, the consumption of oil, copper, aluminium, and nickel in Japan increased more rapidly than in the United States and West Germany, growing at double the pace of GNP (Table 3.2).

TABLE 3.2 - Annual Growth Rate of Consumption of Natural Resources, 1963-1972 (per cent)

Source: World Energy Supplies Metal Statistics, FAO Production Yearbook (various issues).