2 September 1945: Japan signs its unconditional surrender

The story of the Japanese recovery after 1945 is one of the great economic tales of the 20th century. By the time of the surrender – signed 70 years ago today – the economy was a wreck. The ‘Greater East Asia Co-Prosperity Sphere’ had turned into a nightmare of Japan’s own making. Cities and industrial capacity had been levelled by allied bombing – both conventional and, at Nagasaki and Hiroshima, nuclear.

Industrial production was at one tenth of pre-war levels. Hyper-inflation and commodity shortages were rife. A contemporary allied report estimated that Japan had lost up to a quarter of its entire national wealth in the conflict.

As Japanese officials boarded the USS Missouri in Tokyo Bay to sign an unconditional surrender that was to put Japan under foreign occupation for the next seven years, it might have seemed that the humiliation was only just beginning.

In fact, the US occupation proved to be not so much the end as a new beginning. The allied administrators, ever suspicious of monopolies, worked to abolish the Zaibatsu – the big industrial conglomerates that had dominated the Japanese economy for decades. However, they were unable to create a world of free-wheeling liberal capitalism in its place.

A new model, the Keiretsu, based on cross-share ownership and cosy relations with government officials sprang up to replace the old conglomerates. These groups included such famous names as Mitsubishi (which owns interests in diverse sectors, such as banking, shipping and construction, as well as cars) and Mitsui, a group which includes Sony and Toshiba.

In politics, too, a distinctively Japanese model asserted itself. Yes, Japan was democratic, but it was the sort of democracy where one big-tent party (the Liberal Democrat Party, or LDP) could remain in power for 38 years without interruption.

Out of a cataclysm, Japan was able, in a few short decades, to transform itself into the world’s second-largest economy, a nation associated not with ruined cities, but with cutting-edge innovation and big-name brands. In the 1950s, Japanese GDP grew at an average rate of 9.1% per annum – in the 1960s it topped 10% a year.

  • John Masterman

    and while Japan, Germany, France were building their economy after the war, Britain, under Labour, built a welfare system and we have never caught up.

    • David Stuart

      Exactly John and now it is bankrupting us!