The domestic economic policy of the Japan Socialist Party (JSP) immediately following the war was interventionist in character. It included emphasis on a planned economy, the nationalization of major industries, and cooperation between labor and industrialists at the expense of the interests of capital. As a consequence, it has been conventional practice to view the JPS's foreign economic policy as based on the principle of autarky. In actuality, however, it was much more open in nature, promoting both participation in the Bretton Woods Agreement and the introduction of foreign capital. The JSP reasoned that it would be necessary to pursue an interventionist domestic economic policy in order for Japan to obtain the economic power to enable competitiveness in an open international economic order.
Two historical origins of the JSP's postwar positive evaluation of an open international economic order can be delineated. First, the right wing of the JSP was supportive of an open international economic order from the time immediately following the formation of social democratic parties in the late 1920s. Second, the attitude of the left wing of the JSP, the ‘Labor-Farmer’ faction (
Ronoha), changed over time from opposition to support of an open international economic order. Prior to the Second World War, the ‘Labor-Farmer’ faction had been critical of such an open order. However, at the time of Japan's defeat, upon reflecting on the international economic order created by Japan during the war, it came to approve of the open international economic order created by the United States of America.
At the time of the formation of the Socialist Party-led Katayama Cabinet in June 1947, the Japanese economy was autarkic out of necessity, and it was thought that this situation would continue for some time. It was in these circumstances that the major industrialists and the left of the capitalist parties, the Democratic Party, supported the economic policies of the JSP. Further, with economic recovery in mind, they cooperated with the JSP and its labor union base, the Japan General Federation of Labor (
Sodomei), in order to prepare for entry into an open international economy. As a result, the Katayama Cabinet was a coalition centered on the JSP and Democratic Party and it placed much importance on the Council for Economic Reconstruction (
Keizaifukkokaigi), an organization for the promotion of cooperation between workers and employers in which the major economic groups and labor unions participated, as a means of implementing interventionist domestic policies.
In August 1947 GHQ approved of the restoration of private trade in certain areas. The major industrialists and the Democratic Party, confronting this earlier than expected partial deregulation of exports, became more positive towards the rationalization of firms through such measures as the retrenchment of excess employees so as to improve international competitiveness. The industrialists were, however, unable to implement such rationalization programs because of the fact that, firstly, despite the above mentioned partial deregulation, the government still controlled an extremely large portion of trade, and secondly, that a socialist filled the post of Prime Minister.
From the end of 1947, the situation had improved so that the introduction of foreign capital, especially private foreign capital, was now considered possible, although respective party responses differed to this changed situation. The major industrialists and the Democratic Party, who were both highly supportive of the introduction of foreign capital, began anti-labor calls similar to the right of the capitalist parties, the Liberal Party, for a retrogressive revision of the labor law in order to better promote the interests of capital. Furthermore, they commenced a program of enterprise rationalization. The resignation of Katayama and the appointment of a Democrat,
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