ECONOMYNEXT – Japan’s ambassador to Sri Lanka Mizukoshi Hideaki, delivered a speech on the his country’s economic transformation, at of JICA-chair special program. The full text of the speech is reproduced below.

1. Greetings and Acknowledgements:

Today I am very happy and honorable to address to the students of JICA-chair program of Colombo University and Peradeniya University as well as the members of JDS Alumni Association at a very crucial juncture in the history of Sri Lanka. Only ten (10) days earlier, Sri Lankan people made a historic choice of departing from the traditional party politics and supporting a new leader with the determination to make a complete system change of the politics and society.

Immediately after the election of new leader, I have expressed my commitment to support the new government which represented people’s desire for change.

Since the economic crisis, Japan has supported Sri Lanka with the emergency humanitarian assistance and with the negotiation of the debt restructuring. Sri Lanka has achieved certain economic stability under the Wickremesinghe government, but it’s only at the start line for the full-fledged recovery.

Today I would like to speak on the history of development of Japan which has gone through complete transformation of system several times in its modern history, which I hope will inspire young Sri Lankan people to chart the direction of the reform of Sri Lanka to achieve socio-economic transformation.

2. Brief Introduction to the Purpose of the Speech:

Today, I stand before you to share a story, not just any story, but the story of a nation that rose from the ashes of war to become one of the world’s leading economies. This is the story of Japan, my homeland, from the transformative Meiji Restoration through the turbulent times of World War II, culminating in what is often termed the ‘Economic Miracle’ after the World War II.

3. Overview of Japan’s Journey from the Meiji Restoration to the Economic Miracle:

Our journey through history is a testament to resilience, innovation, and foresight. Beginning in the late 19th century, under the pressure to open the country from Western powers, Japan embarked on a path of rapid modernization and industrialization, fundamentally altering its society and economy.

This journey was not without its challenges, as the scars of World War II testify. However, the occupation by victors of WWII was the Japan’s 2nd chance of transformation. The post-war era opened the doors to an unprecedented period of economic growth and prosperity, a phase often referred to as the ‘Japanese Economic Miracle.’

4. Relevance of Japan’s Experiences to Sri Lanka’s Current Economic Situation:

Why recount this tale in Sri Lanka today? Because in the heart of Japan’s historical narrative lie universal lessons of overcoming adversity, embracing change, and fostering growth. Sri Lanka, at this juncture of economic hardship, stands where Japan once stood. Today, as Sri Lanka is trying to overcome the worst economic crisis in its history and turn a new page towards the future, I wish to draw parallels, illuminate paths, and inspire ideas that can potentially guide Sri Lanka toward a future of prosperity and stability.

Section II: Japan’s Historical Context

A. The Meiji Restoration and Foreign Pressure

In 1868, Japan embarked on a dramatic transformation from a feudal society, a society run by samurais into a modern nation-state. This period of change, known as the Meiji Restoration, began with the restoration of imperial rule and led to profound changes in Japanese society, economy, and governance.

It is essential to note that many reforms in Japan occurred against the backdrop of foreign pressures to open the country to foreign trade, symbolized by the arrival of a large modern US Navy fleet, so to speak Commodore Perry’s Black Ships. While external pressures gave rise to a nationalistic and exclusionary sentiment to expel the foreigners, Japanese leaders strategically decided to embrace Western advancements in technology and democratic institutions, keeping the “Japanese spirit” and learning from Western technology. This allowed Japan to modernize the country without losing its unique identity.

B. Key Reforms and Modernization Efforts:

Several groundbreaking policies were introduced during the era of the Meiji Restoration.

The abolition of the feudal system dismantled the power of the samurai class, paving the way for a more centralized government, meritocracy and classless society. The Meiji leaders established a conscript army, replaced feudal domains with prefectures, and introduced a Western legal system and new constitution, laying the groundwork for a parliamentary democracy.

In terms of economic modernization, the government actively promoted industrialization. This included the establishment of a modern banking system, the construction of railroads and telegraph lines, and the adoption of Western technologies. The government fostered high quality silk industry for export and encouraged zaibatsu, or powerful business conglomerates, which played a crucial role in Japan’s industrial growth until World War II.

In education, a national system was established, inspired by American and French models, which emphasized universal education and literacy. This was a revolutionary change, as it provided the general population with access to education, fostering a more informed and capable workforce.

C. From the Russo-Japanese War to WWII:

The modernization initiated during the Meiji Restoration culminated in Japan’s pinnacle of success with the victory in the Russo-Japanese War of 1905. However, the heightened nationalism among the Japanese people and a sense of superiority over other Asian ethnicities following this victory contributed to a shift toward excessive nationalism and militarism. Subsequently, Japan pursued colonization in the Korean Peninsula, further aggression in China, and escalated tensions with Western nations which are seeking equal opportunities for trade and investment in Asia.

Amidst this nationalistic trend, Japan overestimated its capabilities, lost strategic judgment, and, fueled by a sense of invincibility, carried out the ill- advised attack on Pearl Harbor, leading to its involvement in World War II. Immediately after the attack on Pearl Harbor, Japan also started to attack South East Asian and South Asian countries including Ceylon under colonial rule at the time.

The consequences of the war were devastating. Japan’s economy was left in ruins, and the societal impact was immense, leading to widespread poverty and suffering. The aftermath of World War II required a reevaluation of Japan’s role on the global stage and a commitment to peace and reconstruction. This turbulent period in our history serves as a stark reminder of the enormous cost of military conflict, the importance of moderation in the diplomacy as well as peace and stability of international relations for national prosperity.

Section III: The Post-War Development of Japan

A. Post-War Reconstruction (1945-1952)

1. Initial Challenges and Occupation by the Allied Forces:

In the aftermath of World War II, as Japan became under occupation by the victors of the World War, Japan faced daunting challenges. Our cities were devastated, our economy was in tatters, and our society was marked by profound suffering. Under occupation by the US Forces led by General McArthur of the US Army, Japan began the arduous process of rebuilding.

2. Rebuilding Efforts, Economic Policies, and Democratic Transformation under Occupation of the Allied Forces:

Under the occupation, Japan embarked on a transformative journey, witnessing profound reforms that went beyond the conservative norms of the pre-war era.

Let me explain in some detail Japan’s experience in the occupation period from 1945-1952. During the occupation, the US forces did not resort to direct rule but resorted to indirect rule. Occupation by indirect rule means that, under the occupation, the Government of Japan continued to exist with the Prime Minister, Cabinet Ministers, and bureaucrats, and the policies were implemented basically through the Japanese Government, not directly by the US Forces and there have been constant consultations between the US Forces and the Government of Japan. Such a system was possible, because after the surrender, Japan cooperated with the occupation without resistance.

The Government of Japan was headed by Prime Ministers, such as Yoshida Shigeru, who had been pursuing peace before World War II as a diplomat in conflict with the military government at the time and had the determination to transform Japan into a more democratic and peace-loving country.

The Goal of occupation for the United States at the beginning of the occupation period was to bring about change in Japanese society so that the militarism that prevailed before and during the War would never be revived and Japan would never become a threat again to the US and its allies. For that purpose, the allied forced not only abolished the Japanese military forces but also tried to make economic and social changes to make Japan a less authoritarian and more egalitarian society with a robust middle class with democratic ideas.

Thus, they forced the Japanese Government to implement farmland reform, meaning the distribution of farmland from landlords to peasants, creating a mass of smallholder farmers.

They promoted labor union activities and ordered the break up of zaibatsu, the large industrial and banking conglomerates like Mitsui and Mitsubishi. The US Forces thought these conglomerates were supporting the military during the war and wanted to weaken their power so as to ensure that Japan will never again emerge as a strong military power.

With these measures along with the introduction of property tax and inheritance tax, Japan became a country with the least gap between the haves and have- nots. The introduction of the new constitution with universal suffrage, has generated a feeling among people that everyone is equal, and everyone has an equal opportunity for success if you only work hard. Some of you may have watched Japanese teledrama “Oshin”.

Oshin is a story of a girl born in a very poor peasant family and obliged to work as a house maid in a very young age. But with her desperate efforts, she succeeds in her life to become a successful owner of a large supermarket chain. The drama was very popular in Japan because it was a story that could have happened to any Japanese who lived in this period when all the Japanese suffered from poverty and hardship. These reforms led by the U. S. forces, perhaps unintentionally created a huge mass of very educated and motivated workforce and space for young entrepreneurs to start new businesses.

During the occupation period, after WWII, Japan was bankrupt and suffering from super-inflation and a high rate of unemployment. A few years after the start of the occupation with the intensification of the Cold War, the United States shifted its objective of occupation from demilitarization to reconstruction of the Japanese economy because Americans thought the Japan in extreme poverty would be vulnerable to communist ideology promoted by Soviet Union and the communist China at the time.

It was in such context that the US dispatched Joseph Dodge, a Chairman of an American bank and strong believer of free market mechanism to Japan to advise on overall economic policies. His recommendations which are named “the Dodge Plan” centered on balancing the national budget, combatting the super inflation and reducing government subsidies. His role was similar to the role that the IMF mission plays for the Sri Lankan economy at this moment.

On tax policy, Carl Shoup, Professor of Economics of Colombia University was dispatched to Japan. He recommended several principles for the tax system in Japan such as fairness of the burden, centrality of income tax, introduction of wealth tax, and inheritance tax. It is worth reflecting on how such recommendations by foreign experts under occupation helped Japan to lay the basis of new fiscal and tax policy, which paved its way to the economic miracle after its independence from occupation.

B. The Economic Miracle and Japanese Politics after Independence (1952-1990)

1. Key Factors Behind the Rapid Economic Growth and Transformative Governance:

The post-American occupation era from 1952 marked the onset of Japan’s Economic Miracle. The government’s strategic role in steering the economy through policies such as tax incentives or the use of development banks in strategic industrial sectors was instrumental in fostering competitive industries such as automobile or petrochemical industries.

Also, the role of the private sector to increase their productivity and efficiency through investment, innovation and the Japanese style management system, such as 5S (sort, systematize, sweep, sanitize, self- discipline) or Quality Circle was instrumental in enhancing the competitiveness of Japanese companies.

Vice Chancellor Karunaratne showed an very impressive data in his lecture in the JICA-Chair program on the rapid improvement in the productivity of automobile industry of Japan. According to the data, the number of cars produced by one worker in one month increased by 15 times for Japanese car makers like Toyota and Nissan in 30 years from 1955 to 1985, while the productivity increased only 1.5 time for GM and Ford during the same period. I heard that this time a visit to Toyota Lanka is being organized for the students of JICA-Chair program. I hope it will be a good opportunity to have interest in Japanese style management.

Through the 1960s, Japan achieved “Income Doubling Plan” by the Prime Minister Ikeda, doubling per capita GDP in ten years, and Japan’s size of GDP surpassed that of West Germany to become No.2 economy in the world. The improvement of productivity was certainly one of the reasons of such rapid economic growth.

The Economic Miracle brought about not just economic prosperity but a holistic transformation of Japanese society and culture. This transformative period witnessed the creation of a large middle class, improved living standards, and the dawn of a new consumer culture. Japanese people who had lost self- confidence after the defeat in World War II regained confidence through national achievements such as Tokyo Olympics in 1964 and construction of Shinkansen, the fastest train in the world at the time which started operation just 9 days before the opening of Olympic games. People believed that each of them could contribute to the development of the country and achieve something better for the country.

2. Japanese Politics after Independence from the occupation:

Turning to Japanese politics, Japan was governed consistently by business-friendly conservative parties, first by the Liberal Party led by Shigeru Yoshida, succeeded by the Liberal Democratic Party (LDP), which was created in 1955 by the merger of the Liberal Party and Democratic Party, to be another conservative party.

The rule by the Liberal Democratic Party lasted until this day except for a short period of rule by the center-left coalition cabinet. In fact the latest LDP government, the new government by Mr. Ishiba Shigeru, is just going to start today. The Japanese Parliament is now in the session and he will be elected as 102nd Prime

Minister since the establishment of the Japanese Constitution in the Meiji era. This long rule of the Liberal Democratic Party was possible because it was able to sustain the high growth of the economy and succeeded at raising the standard of living of ordinary people creating a large middle class and developing basic infrastructure for the people.

However, the long rule by the same party brought about collusion between the politicians, bureaucracy, and the business world. Members of the LDP were always in great need of campaign funds because they had to compete among themselves in a multiple-seat constituency electoral system, which means several MPs of the same party were elected from one constituency. That was seen as one of the reasons of political corruption.

3. History of Corruption and Anti-Corruption Efforts:

One of the most successful and popular Japanese politicians in the ruling Liberal Democratic Party at the time of economic Miracle was Mr. Tanaka Kakuei, who was born in a farming family, received only primary school level education, and elected as member of Parliament just after the World War II under the US occupation. He rapidly distinguished himself through inner power struggle in the ruling Liberal Democratic Party with his personal charm and also capacity to collect large political fund. All the Japanese people applauded him when he became the first Prime Minister with no college degree and he advanced many mega infrastructure projects under the banner of “Japanese Archipelago Remodeling Plan,” which caused not only economic growth but also hyperinflation.

People were shocked when he was arrested in 1976 for the Lockheed Bribery Scandal after his retirement from the PM. He was bribed when he was PM by a Japanese trading company for the choice of American aircraft to be purchased by a Japanese Airline company.

The Liberal Democratic Party which has been in power most of the time from 1955 until today was toppled by the opposition twice in 1993 and in 2009 both times due to strong public criticism related to corruption of the ruling party. There has been efforts to take legislative measures to prevent corruption. There have been mainly two kinds of amendments in Japan to tackle the corruption. One is to regulate funds for political campaigning and the other is to make stricter rules on bribes.

Political Funds Control Act was first legislated in 1948 under the US occupation and it has been enhanced significantly in 1975 at the time of the Lockheed Scandal by Prime Minister Tanaka Kakuei and further enhanced in the 1990s following other corruption scandals in that period. Typical bribery has been traditionally to receive money or other personal profit in exchange for favorable treatment by people in a position of government. In 1959, after a big scandal by the Liberal Democratic Party, the legislation for bribery is enhanced so that not only those who give the favor directly to the people who are providing bribe but those who are mediating or putting pressure to civil servants in charge to give favors in exchange of personal profit became also punishable.

The corruption has not been entirely eradicated in Japan, the transparency of funds of political groups, or factions, within the LDP has been the latest political issue since last year and that was one of the main issue debated during the election campaign of the President of the LDP, which took place just a week ago.

However, thanks to improvements made by the past efforts, Japan now ranks in the 20th position out of 180 countries as least corrupted country according to the Corruption Perception Index by Transparency International in 2023.

Section IV: Drawing Lessons for Sri Lanka

For Sri Lanka, in the process of rebuilding its economy, there are several lessons to be learned from Japan’s experience, but I would like to highlight three key points.

1. Taking advantage of External Pressure:

Firstly, taking advantage of external pressure. Looking back at Japan’s history, most reforms in Japan that were achieved would not have been possible without pressure from the international community. The reformist leaders of Japan, whether during the Meiji restoration period or under occupation after WWII, had made wise decisions for the future of the country decisions under foreign pressure.

Today, Sri Lanka is trying to reform the economic system under the agreement with the IMF. Reforms such as tax reform, electricity reform, or SOE reform may be challenging and not always popular to citizens. However, viewing the utilization of such external pressure for the betterment of the country should not be seen as a weakness but as a testament to the wisdom of leaders.

India which went into financial crisis in 1991, went through structured adjustment of the IMF and World Bank. The economic reforms which have achieved at the time transformed India into a fast- growing economy. From an international perspective, agreements with the IMF serve as backing for Sri Lanka’s commitment to pursuing rational and consistent economic policies.

Japan recently announced the resumption of 11 yen loan projects that have been suspended since May 2022 due to the default of Sri Lanka ahead of any other foreign countries. It is important to recognize that this resumption was done on the basis of Sri Lanka’s agreement with IMF and official creditor countries.

2. Building up Competitive Industries:

The second lesson from Japan’s experience that I can think of is importance of building up a competitive industry for economic growth. Sri Lanka is now at a crossroads. This economic crisis can be utilized as a golden opportunity to transform and grow. Japan’s experience of the economic miracle shows that it is important to formulate its industrial policy to foster a competitive export industry. What can be the strong and competitive industries for Sri Lanka?

Sri Lanka’s economy has stabilized under the IMF programme. The inflation was contained to single digit and the GDP growth turned positive from the 4th quarter of the last year. I commend the immense efforts of the government and the people of Sri Lanka to bring about this economic stability in a very short time.

However, once Sri Lanka lifts its import restriction, there is a danger of foreign currency shortage happening again. Therefore, after achieving the stabilization, it is essential to build up a competitive industry that can push sustainable development of the country and earn foreign currencies. In building up industries, Sri Lanka may learn lessons from Japan’s

industrial policies. It is important not to protect a loss making industry with government money but to ensure a smooth transition from uncompetitive industry to more competitive industry.

3. Overcoming Corruption:

The third point I would like to raise is overcoming corruption. I would like to touch upon corruption problems because it is important for the development of Sri Lanka. As Sri Lankan people having chosen a new leader, Anura Kumara Dissanayake, so committed to overcoming corruption, there is a unique opportunity to eradicate this malady that has been spoiling this country for a long time. Observing Sri Lankan politics since I came here, I would like to point out two aspects of problems of corruption in Sri Lanka.

First, corruption is a source of distrust of leaders of the country by the people, and it discourages people from being responsible citizens of the country when leaders are corrupt. It gives convenient excuses to tax payers for tax evasion. Secondly, it is very harmful when Sri Lanka wants to attract foreign investment. Transparent and predictable business environment is essential to gain trust from foreign investors.

Japanese companies are nowadays strictly observing the compliance obligation and therefore never offer bribes or kickbacks. If that kind of culture remains in Sri Lanka, there is no prospect for Japanese investment coming into Sri Lanka. I am saying this because I would like to see more Japanese investment

in Sri Lanka to support economic growth. Sri Lankan people have chosen a leader who has promised to eradicate corruption as his No.1 agenda. I have mentioned earlier that Japan ranks in 20th place out of 180 as least corrupted countries.

Sri Lanka’s ranking is No.101. I hope, Sri Lanka will draw lessons from experiences of various countries, including Japan, to develop effective anti-corruption mechanisms. Last week I met Dr. Nandika Sanath Kumanayake, the new secretary to the President who has studied in the National Graduate Institute for Policy Studies (GRIPS) in Japan and completed MA and PhD, and he is an expert on the corruption issue. I offered him to share the experiences of anti-corrupiton measures that Japan has been taking to date.

There are many other lessons that can be drawn from Japanese experiences and we are ready to provide opportunities for Sri Lankan people to learn from them through JICA programs and other means.

Conclusion

Japan’s experiences of turning the crisis into an opportunity for success that I related today hopefully will give hints and generate insights into overcoming adversity, embracing change, and fostering growth. As Sri Lanka stands at a crossroads of economic challenges, I encourage all of you to draw inspiration from Japan’s transformative journey.

As Japan looks back on its journey of modernization and the transformative reforms that led to the prosperity of Japan, I am hopeful that Sri Lanka, drawing from these lessons, can chart its course toward a future of resilience, innovation, and prosperity.

Lastly I would like to mention that my tenure as Ambassador of Japan to Sri Lanka will end shortly and I am leaving in late October. I came to Sri Lanka in November 2021 at the time of Gotabaya government. I experienced with Sri Lankan people the worst ever economic crisis and Aragalya movement in 2022.

Japan made best effort in supporting Sri Lankan people with humanitarian assistance and Sri Lankan government in negotiation of the debt restructuring. Starting from the worst time in 2022, Sri Lankan economy has recovered considerably. As my term was approaching to the end, on the 21st of September, Sri Lankan people chose a change to a completely new system in a peaceful and transparent way. I highly appreciate all Sri Lankas for this democratic process. In

Japan also a leader, Mr. Ishiba Shigeru, is being chosen in the Parliament today. In my remaining 3 weeks in Sri Lanka, I would like to lay the foundation of trust and friendship between our two new governments and people of Japan and Sri Lanka.

In the spirit of enduring friendship, let us work together towards a shared vision of progress, and may the bonds between Japan and Sri Lanka continue to strengthen and prosper.

Thank you for your kind attention.