After World War II, Japan's economy began to evolve. This led to the restriction of the rice trade. During World War II, the government had heavily managed Japanese industry. The focus was on furthering the war effort. When the war was over, it did not make sense to continue building up the military. The new focus was the re-energizing of the economy to catch up with Western industries. To accomplish this goal, the Japanese government took control of scarce capital. The government used its resources to rebuild and grow the infrastructure and Japanese industries. The government also subsidized new industries by loaning capital and stimulating private investment capital. When the government backed a particular industry or business, it guaranteed that it would support that company's success. Private citizens could regard these businesses and industries as safe investments. Therefore, they too invested their money in those industries and businesses.

CS Question #1: How did Japan's government stimulate economic growth?

To guarantee the success of an industry or business, the Japanese government often intervened. The government used many methods, including:

• erecting trade barriers and tariffs
• exempting certain corporations from monopoly laws
• building up the infrastructure of rural regions to attract industry
• offering research and development loans

The result of these efforts was heavy economic growth. The Japanese economy grew by an average of 9.7 percent yearly from 1955 to 1970. From 1971 to 1990, it grew by an average rate of 4.24 percent yearly.

CS Question #2: What methods did the Japanese government use to intervene on behalf of an industry or business?

In Japan, the most heavily government-regulated agricultural crop is rice. At the end of World War II, the importation of rice was not permitted in Japan. That government rule lasted for almost 50 years. In 1993, during the General Agreement on Tariffs and Trade (GATT) negotiations, Japan's representatives agreed to modify that decision. They allowed for the importation of 4 percent of the total amount of rice used domestically.

On the surface, this implied that Japan had opened its rice market to free competition. However, Japan was able to secure specific language in the GATT agreement. It stated that nations that import products could establish tariffs. By setting high tariffs on imported rice, the Japanese government was able to control the market price. The high market price of imported rice increased the price of domestic rice. In fact, Japanese consumers pay almost seven times the world average for rice grown domestically.

CS Question #3: Why is the price of rice so high in Japan?

Rice is very significant to the Japanese culture. It is the main staple of their food supply. Rice farming is a historical institution in Japan. Profits made on the sale of rice are reinvested in the economy. The process of overvaluing rice has created the funding for infrastructure programs to strengthen rural areas. The employment in these projects provides capital for citizens to spend. However, if the price of domestic rice continues to remain high, demand may decrease, causing many Japanese farmers to abandon their farms.

CS Question #4: Why is rice, even at an elevated price, so important to the Japanese?

Further Thought:

1. Is government intervention an appropriate way to stimulate economic growth? Explain your answer.
2. What are some other ways to stimulate economic growth?
3. Discuss two specific ways that tariffs can affect international trade. (Try to think of real-life examples. If you cannot, you may use hypothetical scenarios.)