Dodge Line

Last updated
Hayato Ikeda meeting Dodge (right) in 1948 Hayato Ikeda meets Joseph Dodge.jpg
Hayato Ikeda meeting Dodge (right) in 1948

The Dodge Line or Dodge Plan was a financial and monetary contraction policy drafted by American economist Joseph Dodge for Japan to gain economic independence and stamp out inflation after World War II. [1] It was announced on March 7, 1949. The Dodge Line was a major element of the so-called Reverse Course a broader shift in the policies of the U.S.-led military occupation of Japan from an initial phase of demilitarizing and democratizing Japan to remilitarizing and economically strengthening Japan in response to rising Cold War tensions in East Asia.

Contents

Background

On September 2, 1945, Japan surrendered to the Allied powers, bringing an end to World War II in Asia, and leading to the U.S.-led Allied Occupation of Japan. In the initial phases, the Occupation focused on liberalizing and democratizing Japanese society to ensure that Japan would never again be a threat to world peace. [2] Within this permissive atmosphere, the Occupation allowed the Japanese to pursue an expansionary economic policy, but the economy quickly overheated, leading to hyperinflation. [3] From September 1945 to August 1948, prices in Japan increased more than 700%, which precipitated major unrest across broad sectors of Japanese society. [3]

Meanwhile, Cold War tensions were ramping up in Europe, where the Soviet occupation of Eastern European countries led Winston Churchill to give his 1946 "Iron Curtain" speech, as well as in Asia, where the tide was turning in favor of the Communists in the Chinese Civil War. [4] These shifts in the geo-political environment led to a profound shift in U.S. government and Allied Occupation thinking about Japan, and rather than focusing on punishing and weakening Japan for its wartime transgressions, the focus shifted to rebuilding and strengthening Japan as a potential ally in the emerging global Cold War. Meanwhile on the Japanese domestic front, rampant inflation, food insecurity, and widespread poverty in the wake of Japan's defeat fostered the rapid expansion of militant leftist political parties and labor unions, leading Occupation authorities to fear that Japan was ripe for communist exploitation or even a communist revolution.

Dodge's plan

In order to address the twin goals of strengthening Japan economically and disempowering the Japanese left by taming inflation, the Occupation brought in Detroit banker Joseph Dodge as an economic policy consultant. In February 1949, Dodge arrived in Japan to take stock of the situation, and on March 7, he announced his plan, known as the "Dodge Line." It recommended:

  1. Balancing the national budget to reduce inflation
  2. More efficient tax collection
  3. Dissolving the Reconstruction Finance Bank because of its uneconomical loans
  4. Decreasing the scope of government intervention
  5. Fixing the exchange rate to 360 yen to one US dollar to keep Japanese export prices low

Effects

These policies succeeded in getting Japan's rampant inflation under control, but caused significant short-term hardship for Japanese workers, leading to mass layoffs as the economy went into contraction, a painful period of economic adjustment known as the "Dodge squeeze." [5] Japan was plunged into a severe recession (ja:安定恐慌), which did not end until the massive economic stimulus produced by U.S. military special procurements in Japan following the outbreak of the Korean War in 1950. [6]

The fixed exchange rate of 360 yen to one dollar remained unchanged into the early 1970s, helping turbo-charge Japanese exports and fueling the Japanese economic miracle.

Economic indicators and timeline

Macroeconomic conditions of Japan, 1945–1954 [7]
Year GNP Growth Rate (%) Inflation Rate (%) Monetary Base Growth Rate (%)Gov's Debt Growth Rate (%)Trade balance to GNP Ratio (%)Major Events
194551.1148.29.0 Surrender of Japan (Aug.)
1946364.567.6418.3Financial asset freeze (Feb.); zaibatsu dissolution
19478.4195.9132.975.9-6.2General strikes banned (Feb.); break up of monopolies, land reform, labor reform
194813.0165.561.5135.1-3.8
19492.263.30.356.0-2.0Dodge Plan (Feb.); Unification of multiple exchange rates to 360 yen per dollar (April); National Railway president Death (July)
195011.018.218.91.20.3 Korean war started (June)
195113.038.819.924.0-1.9 Treaty of San Francisco

Korea War armistice talk started

195211.02.013.816.8-2.3
19535.75.010.816.6-4.5Korean War armistice signed (July)
19546.16.5-0.92.3-2.2

Related Research Articles

<span class="mw-page-title-main">Occupation of Japan</span> Post-World War II occupation of Japan

Japan was occupied and administered by the Allies of World War II from the surrender of the Empire of Japan on September 2, 1945, at the war's end until the Treaty of San Francisco took effect on April 28, 1952. The occupation, led by the American military with support from the British Commonwealth and under the supervision of the Far Eastern Commission, involved a total of nearly one million Allied soldiers. The occupation was overseen by the US General Douglas MacArthur, who was appointed Supreme Commander for the Allied Powers by the US president Harry S. Truman; MacArthur was succeeded as supreme commander by General Matthew Ridgway in 1951. Unlike in the occupations of Germany and Austria, the Soviet Union had little to no influence in Japan, declining to participate because it did not want to place Soviet troops under MacArthur's direct command.

<span class="mw-page-title-main">Shigeru Yoshida</span> Prime Minister of Japan (1946–1947, 1948–1954)

Shigeru Yoshida was a Japanese diplomat and politician who served as prime minister of Japan from 1946 to 1947 and again from 1948 to 1954, serving through most of the country's occupation after World War II. Yoshida played a major role in determining the course of post-war Japan by forging a strong relationship with the United States and pursuing economic recovery.

<span class="mw-page-title-main">Hayato Ikeda</span> Prime Minister of Japan from 1960 to 1964

Hayato Ikeda was a Japanese politician who served as prime minister of Japan from 1960 to 1964. He is best known for his Income Doubling Plan, which promised to double the size of Japan's economy in 10 years, and for presiding over the 1964 Tokyo Olympics.

<span class="mw-page-title-main">Postwar Japan</span> Period of Japanese history from 1945 to 1989

Postwar Japan is the period in Japanese history beginning with the surrender of Japan to the Allies of World War II on 2 September 1945, and lasting at least until the end of the Shōwa era in 1989.

<span class="mw-page-title-main">Economic history of Japan</span>

The economic history of Japan refers to the economic progression in what is now known as modern-day Japan across its different periods. Japan's initial economy was primarily agricultural, in order to produce the food required to sustain the population. Trade existed in this period, and artifacts of culture from mainland Asia were introduced to the Japanese, such as pottery.

The Reverse Course is the name commonly given to a shift in the policies of the U.S. government and the U.S.-led Allied occupation of Japan as they sought to reform and rebuild Japan after World War II. The Reverse Course began in 1947, at a time of rising Cold War tensions. As a result of the Reverse Course, the emphasis of Occupation policy shifted from the demilitarization and democratization of Japan to economic reconstruction and remilitarization of Japan in support of U.S. Cold War objectives in Asia. This involved relaxing and in some cases even partially undoing earlier reforms the Occupation had enacted in 1945 and 1946. As a U.S. Department of State official history puts it, "this 'Reverse Course'… focused on strengthening, not punishing, what would become a key Cold War ally."

<span class="mw-page-title-main">Japan–United States relations</span> Bilateral relations

International relations between Japan and the United States began in the late 18th and early 19th century with the diplomatic but force-backed missions of U.S. ship captains James Glynn and Matthew C. Perry to the Tokugawa shogunate. Following the Meiji Restoration, the countries maintained relatively cordial relations. Potential disputes were resolved. Japan acknowledged American control of Hawaii and the Philippines, and the United States reciprocated regarding Korea. Disagreements about Japanese immigration to the U.S. were resolved in 1907. The two were allies against Germany in World War I.

<span class="mw-page-title-main">Japanese economic miracle</span> Period of rapid economic growth in Japan from the 1950s to 1990s

The Japanese economic miracle refers to Japan's record period of economic growth between the post-World War II era and the beginning of the global Oil Crisis (1955–1973). During the economic boom, Japan rapidly became the world's third-largest economy, after the United States and the Soviet Union. By the 1970s, Japan was no longer expanding as quickly as it had in the previous decades despite per-worker productivity remaining high.

<span class="mw-page-title-main">Joseph Dodge</span>

Joseph Morrell Dodge was a chairman of the Detroit Bank, now Comerica. He later served as an economic adviser for postwar economic stabilization programs in Germany and Japan, headed the American delegation to the Austrian Advisory commission, and worked as President Dwight D. Eisenhower's director of the Bureau of the Budget.

The aftermath of World War II saw the rise of two global superpowers, the United States (U.S.) and the Soviet Union (USSR). The aftermath of World War II was also defined by the rising threat of nuclear warfare, the creation and implementation of the United Nations as an intergovernmental organization, and the decolonization of Asia, Oceania, South America and Africa by European and East Asian powers, most notably by the United Kingdom, France, and Japan.

<span class="mw-page-title-main">1955 System</span> Japanese dominant party system since 1955

The 1955 system (55年体制), also known as the one-and-a-half party system, is a term used by scholars to describe the dominant-party system that has existed in Japan since 1955, in which the Liberal Democratic Party (LDP) has successfully held by itself or in coalition with Komeito a majority government nearly uninterrupted, with opposition parties largely incapable of forming significant or long lasting alternatives, other than for brief stints in 1993–1994 and 2009–2012. The terms 1955 system and the one-and-a-half party system are credited to Junnosuke Masumi, who described the 1955 system as "a grand political dam into which the history of Japanese politics surge".

<span class="mw-page-title-main">Sanbetsu</span>

Sanbetsu (産別) was a Japanese trade union centre between 1946 and 1958. When it was founded in 1946 it emerged as the main force in the Japanese post-war labour movement and led a campaign of militant strikes. However, it suffered a major backlash after only a few months in existence when a planned general strike was aborted. Internal divisions followed, and the organization was never able to recover its initial strength.

<span class="mw-page-title-main">Eleanor Hadley</span> American economist (1916–2007)

Eleanor Martha Hadley was an American economist and policymaker. Because of her relatively rare research specialization in Japanese economics, during World War II Hadley was recruited first into OSS and then the State Department to support the United States' war effort while she was a doctoral candidate in economics at Radcliffe College. Hadley helped draft the United States' plans for dissolving zaibatsu business conglomerates as part of a planned effort to democratize Japan after the war, and she participated in implementing this economic deconcentration program when the postwar occupation brought her to Japan to work for SCAP as an economist.

<span class="mw-page-title-main">Shibuya incident</span> 1946 gang fight in Tokyo, Japan

The Shibuya incident was a violent confrontation which occurred in June 1946 between rival gangs near Shibuya Station in Tokyo, Japan. The years after World War II saw Japan as a defeated nation and the Japanese people had to improvise in many aspects of daily life. In the chaos of the post-war recovery, large and very lucrative black markets opened throughout Japan. Various gangs fought for control over them. There were also many non-Japanese "third nationals" in post-war Japan. These "third nationals" or "third-country people" were former subjects of the Empire of Japan whose citizenship then transferred to other countries like China and Korea. The Shibuya incident involved former Japanese citizens from the Japanese province of Taiwan fighting against native Japanese Yakuza gangs. After the fight, the Chinese nationalist government stepped forward to defend the Taiwanese.

Following Japan's defeat in World War II, the Allied Occupation of Japan ordered the purge of tens of thousands of designated persons from public service positions. Individuals targeted in the purge included accused war criminals, military officers, leaders of ultranationalist societies, leaders in the Imperial Rule Assistance Association, business leaders involved in Japanese overseas economic expansion, governors of former Japanese colonies, and national leaders involved in the decisions leading Japan into war. Ultimately, SCAP screened a total of 717,415 individuals, and banned 201,815 of them from holding public office. However, as part of the "Reverse Course" in Occupation policy, most of the purgees would be de-purged and allowed to return to public life by 1951.

<span class="mw-page-title-main">Mountain Village Operation Units</span> Japanese communist paramilitary units

The Mountain Village Operation Units were underground paramilitary units organized by the Japanese Communist Party (JCP) in the early 1950s. The purpose of the units was carrying out guerrilla operations against the Japanese government and the Allied Occupation of Japan inspired by Mao Zedong's strategy of forming a base of operations in rural villages to launch a nationwide communist revolution. These operations achieved no successes and proved a disaster for the JCP's political prospects going forward.

<span class="mw-page-title-main">John K. Emmerson</span> American diplomat

John Kenneth Emmerson was an American diplomat, and specialist on Japan and Northeast Asia.

The Red Purge was an anticommunist movement in occupied Japan from the late 1940s to the early 1950s. Carried out by the Japanese government and private corporations with the aid and encouragement of the Supreme Commander for the Allied Powers (SCAP), the Red Purge saw tens of thousands of alleged members, supporters, or sympathizers of left-wing groups, especially those said to be affiliated with the Japanese Communist Party, removed from their jobs in government, the private sector, universities, and schools. The Red Purge emerged from rising Cold War tensions and the Red Scare after World War II, and was a significant element within a broader "Reverse Course" in Occupation policies. The Red Purge reached a peak following the outbreak of the Korean War in 1950, began to ease after General Douglas MacArthur was replaced as commander of the Occupation by General Matthew Ridgway in 1951, and came to a final conclusion with the end of the Occupation in 1952.

The Japan lobby are a group of advocacy organizations influencing American policy towards Japan. The lobby has persisted since the Allied Occupation of Japan following the Pacific War. The Post-occupation lobby has been organized and headed since the occupation by Ministry of International Trade and Industry and the Foreign Ministry. The purpose and political influence of the lobby has shifted over time from journalists and American interest groups advocating for land reform and corporate restructuring in the occupation period to multinational groups employing over 1,000 lobbyists.

<span class="mw-page-title-main">February 1 General Strike (1947)</span> 1947 labor action

The February 1 General Strike was a general strike planned by Japanese labor unions for February 1, 1947, with the goal of fighting for the implementation of the ten demands proposed in last December, including the abolition of the income tax. The strike was eventually stopped by order of SCAP.

References

Citations

  1. Savage, J.D. (2002-06-01). "The Origins of Budgetary Preferences: The Dodge Line and the Balanced Budget Norm in Japan" (PDF). Administration & Society. doi:10.1177/009539902400387191. S2CID   154384324.
  2. Kapur 2018, p. 8.
  3. 1 2 Sugita 2021, p. 8.
  4. Kapur 2018, p. 9.
  5. Takemae 2002, p. 470.
  6. Ito, Takatoshi; Hoshi, Takeo (2019). The Japanese economy Second Edition. The MIT Press. p. 93. ISBN   9780262538244.
  7. Toyo Keizai. 1979.

Sources cited