Globalization, Japan’s Rise, and the Lost Decade

Hey friends! It has been a long time since I wrote my last blog post about the topics I’ve been thinking about lately. Since November 1st, my friend Betül and I have commenced a new project our website: bounpassport. We’ve spent a great deal of time rolling out our new platform, which facilitates interactions among Boğaziçi University students by providing a unique way to share their exchange experiences.

Consequently, I’ve been quite busy with school, my internship, my preparations for Montreal, my assistantship, and my ongoing position at 180DC Boğaziçi. As I write this, I am on a flight to Montreal and will be there in approximately six hours :) I decided to write this post while on my way to Canada. Okay, okay, I’ve talked a bit more than usual, right? I suppose I have, probably because I haven't been able to pay much attention to my website for almost two months!

You can probably grasp what I’m going to discuss in this blog just by looking at the headline. :) This time, I want to reflect on one of the classes we took this year: Globalization and International Management. I can firmly say that I don't know my grade yet as it hasn't been announced, but I hope it doesn't disappoint me—wish me luck! :)

Throughout the semester, our main focus was globalization. We delivered a presentation and wrote a report about a global cluster. Therefore, in this post, I will talk about globalization starting from the 1970s oil crises and moving toward the 2000s through two main questions: What was happening in the world before the 1970s? And what really happened to Japan throughout the 1980s and 1990s?

What was going on in the world before the 1970s?

After the devastating effects of the Second World War, the USA began to take over most of the world's production and exports, as it possessed a robust industrial infrastructure that remained undamaged during the war. During that period, 17% of total goods and almost 60% of total manufacturing products came from the USA. Even more astonishingly, 8 out of every 10 cars manufactured in world markets came from the USA (see Graphic 1), and it maintained this position until the 1970s with only marginal declines. You might ask: what happened after this period that caused the USA’s dominant position to shrink? In fact, there were several reasons, which lead us into the 1980s.

Graph 1

What really happened to Japan throughout the 1980s and 1990s?

First, after the oil crisis of 1973, huge American cars (like those from GM and Ford) that consumed gallons of oil began to lose popularity among Americans, as they were not as fuel-efficient as Japanese cars and this aspect of Japanese cars like Toyota and Honda attracted many American citizens to buy their automobiles. Secondly, American companies were not innovative enough to compete with Japanese goods at the time. Japan was seen as the most innovative and productive country in the world; although the "Made in Japan" stamp did not signify quality in the early 1960s, this perception changed, and it came to be viewed as a mark of quality and innovation.

Japan’s power in the global economy reached its pinnacle as its export surplus hit almost $82 billion in 1986. By 1988, it was the second-largest economy in the world, boasting 8 of the 10 largest banks. Meanwhile, the low value of the Japanese Yen also enhanced the growth of Japanese exports. At that time, America had to take action to prevent Japan from taking control of the global market. This was also when plenty of articles were written on globalization and international competition; Krugman saw the obsession with competition as a distraction, while Porter and the Clinton administration viewed it as a vital strategy for gaining market dominance.

The January 25, 1960 cover of Time Magazine showcases Japan's revival, symbolized by a phoenix, and features Japan's Prime Minister Kishi.

However, in the 1990s, the economic bubble fueled by exaggerated real estate prices and their effect on the Japanese market burst. Most people’s savings vanished in the early 1990s, marking the beginning of Japan’s "Lost Decade." Millions became unemployed, and a large number of individuals committed suicide; during this period, suicide became the most common cause of death for men aged 20–44 in Japan.

The Japanese people had believed their country was entering a new era of prosperity after their currency was forced to appreciate by the USA and other G5 countries to control Japanese exports more "fairly." In the end, cheap money and over-optimism led to a decade of collapse. This environment created a bubble because banks began lending money without proper oversight.

The globalization of Japan was definitely a success story fueled by innovation and strategic government planning. However, a lack of foresight led to a lost decade or perhaps it was a plan to stop Japan? Who knows, right? It also marked the beginning of a generation that viewed starting a family as a burden, which triggered Japan’s ongoing population crisis.

See you in the next post, and I wish you all a great year ahead!

A reflection on my Globalization and International Management class.