Published by EH.Net (September 2015)

Yasushi Tanaka, Toshiaki Tamaki, Jari Ojala, and Jari Eloranta, editors, Comparing Post-War Japanese and Finnish Economies and Societies: Longitudinal Perspectives. London: Routledge, 2015. xxii + 253 pp. $168 (hardcover), ISBN: 978-0-415-65620-7.

Reviewed for EH.Net by Sakari Heikkinen, Department of Political and Economic Studies, University of Helsinki.

Japan and Finland are not the most obvious pair of countries to compare in their economic development. Japan is more than twenty times as large as Finland in both population and GDP, and they are located on opposite sides of the globe. Yet there are also similarities between them: both economies grew quickly after the Second World War and succeeded in joining the rich-country club. At the turn of the millennium, Finnish GDP per capita (PPP-adjusted) surpassed Japan’s, and it has remained higher since then.

This book examines the not-so-obvious pair by analyzing the economic and societal development of Japan and Finland after the Second World War. It is a true joint venture of Japanese and Finnish scholarship. Two of the volume’s four editors are from Kyoto Sangyo University (Yasushi Tanaka and Toshiaki Tamaki) and two are Finns (Jari Ojala from the University of Jyväskylä and Jari Eloranta from Appalachian State University). The book consists of an introduction and ten articles, two of which are methodological. The remaining eight analyze different aspects of the Japanese and Finnish economies in the post-World War II decades. All the eight substantial articles were written by teams comprising both Japanese and Finnish scholars.

Comparison is essential in all human understanding and explanation, as Christopher Lloyd reminds us in the conclusion (Chapter 11). But comparisons come in many varieties, as Pavel Osinsky and Jari Eloranta explain in their methodological piece (Chapter 2). “Variable-oriented research” explores a well-defined relationship using a large number of cases, e.g. countries. Here the emphasis is on generality. Another method of comparison is to study a small number of cases and emphasize in-depth comparison, complexity and context. Such is the methodological approach of this volume.

The actual comparative studies of the book are divided into three parts: Welfare Societies, Macroeconomic Policies, and Trade and Industry. This appears a relevant division, promising wide coverage of different aspects of economic development. However, the two or three articles under each of these headings cover only part of these vast thematic fields.

In Part 2 (Welfare Societies), the first article (Chapter 3) by Maare Paloheimo, Kota Sugahara, Tadashi Fukui, and Merja Uotila compares Japanese and Finnish paths to building a welfare society. The focus is on policies related to work and family. Their comparison highlights, among other things, the higher female labor participation rate in Finland (with a high share of public sector jobs) as well as the Nordic principles of universal, uniform and equal social services. They also illustrate how differences in cultural and religious values have influenced welfare policies, granting a greater role to the family in Japan than in Finland.

In Chapter 4, Anu Ojala, Yasushi Tanaka and Olli Turunen examine Japanese and Finnish systems of higher education and the resulting labor market outcomes. They also briefly compare the educational systems in their entirety. The biggest difference between the higher education systems of the two countries is the fact that Japan relies on private-sector solutions, whereas in Finland higher education is organized and financed almost completely by the state. In examining labor market outcomes, the authors point out the expected result that in both countries the unemployment rate is lower than average among the highly educated. Education-related wage premiums are higher in Japan whereas the general gender equality of pay is greater in Finland. Japanese women are the group who benefit most from higher education attainment while their Finnish sisters do not reap the same gains from being more educated than men.

Jari Eloranta and Yasushi Tanaka compare military spending in Japan and Finland (Chapter 5). The rationale for placing this under the umbrella of the welfare state is revealed in the subtitle “From Warfare to Welfare State.” Both countries lost the war, although in a very different manner, and faced direct external pressure from the winners of the war to constrain military spending — the pressure being stronger in Japan’s case. However, there were also domestic pressures: in particular, the tradeoff between military and social spending that the authors analyze in this article, which is the most cliometric in the book. The authors show how military spending quickly took a back seat and social spending benefited from the low level of military spending.

Macroeconomic policies (Part 3) are discussed in three articles. Toshiaki Tamaki and Timo Särkkä examine the role of Keynesianism in macroeconomic thinking and policymaking (Chapter 6). Since neither of the countries was in the front line of economics, this is more a study on importing than on inventing ideas. The authors examine the practical economic policies of the two countries and show that economic theory hardly defines the choices made in economic policy, at least by itself. They emphasize that the active role of the state implied by the Keynesian demand management policy was not a fundamental problem, since in both Japan and Finland the state had traditionally played a relatively large role. However, neither of the two countries applied purely Keynesian policies, perhaps reflecting their somewhat peripheral position in this respect.

Energy supply and regulation is studied by Park Seung-Joon and Esa Ruuskanen (Chapter 7). Energy use per capita has grown rapidly in both Japan and Finland since 1960 and has been consistently higher in Finland. Energy intensity (energy use/GDP) has also been higher in Finland due to its cold climate and energy-intensive industries (paper and pulp). In both countries, energy intensity has declined since the 1970s, after the oil crises. Both countries have invested in nuclear power and have been cautious regarding the possibilities of alternative energy sources. The main narrative in both countries has therefore been a shift from oil dependency to nuclear energy dependency. One difference between the two countries is that in Finland, the deregulation of the energy sector, starting in the 1990s, has been more extensive than in Japan.

Kari Heimonen, Shigeyoshi Miyagawa and Yoji Morita compare the financial crises of the 1990s in Finland and Japan (Chapter 8). These crises, Finland in 1991 and Japan in 1992, are among “the big five” identified by Reinhart and Rogoff (the other three being Spain in 1977, Norway in 1987 and Sweden in 1991). This makes the Japan–Finland comparison immediately interesting in a global context. The boom and bust cycle had many similarities in both countries. Deregulation of financial markets was unsuccessful in both Japan and Finland, creating a bubble economy, the bursting of which was in both cases at least partly initiated by exogenous shocks: the collapse of trade with the Soviet Union/Russia in Finland and the Louvre Accord (1987) obliging Japan to cut its trade surplus and to ease her monetary policy. Yet recovery was very different: it was rapid in Finland but weak and difficult in Japan. The authors emphasize the role of public intervention here. In Finland, the state actively reorganized crisis-stricken banks and recapitalized them, whereas in Japan policy reaction was much slower. Measured by post-crisis economic performance, Finland’s choice was wiser.

The title of the fourth part, “Trade and Industry,” promises a bit too much. It contains only two articles, which are both too specific to make a comprehensive comparison between Japan and Finland. Juha Sahi and Kazuhiro Igawa examine Finnish–Japanese trade relations from 1919 to 2010 (Chapter 9). The authors show that after trade was liberated from post-war regulations in the late 1960s, trade between Japan and Finland was very unbalanced, Japanese exports to Finland being many times Finland’s exports to Japan. This is no wonder, since Finland’s exports until the ICT boom of the 1990s consisted largely of paper, pulp and other processed wood articles with a much lower value-to-weight ratio than automobiles, Japan’s main export article to Finland. The 5,000 mile distance between the countries thus favored Japanese exports over Finnish.

The manufacturing sectors of Japan and Finland are compared in one article: Pasi Sajasalo and Kazuhiro Igawa’s comparison of the paper industries of the two countries (Chapter 10). Both countries have been among the largest paper producers of the world, but the industry’s macroeconomic weight is much greater in Finland. Furthermore, their raw material base and market orientation are very different. Japanese paper mills rely on imported raw material and process it for domestic markets, whereas the opposite is true in the Finnish case. The authors illustrate the idiosyncrasies of Japanese and Finnish business organizations, the Japanese keiretsu and the Finnish sales associations, but point out their common rationale: a long-standing feature of restraint of competition.

This volume is a collaboration between Japanese and Finnish scholars and also a collaboration between economists and historians. It proves that we can learn much from the in-depth two-country comparison about “the wider paths and causation of economic and social development over the long run,” as Christopher Lloyd notes in his conclusion (Chapter 11). Because of the slight heterogeneity of the articles they do not paint the whole comparative picture of the two economies in their process of post-war economic catch-up. Some of the articles speak more to specialist audiences, for instance to those interested in military spending, the paper industry or Finnish–Japanese trade relations, than to those interested in common trends and features of economic development. However, the book is a good pioneer work that will hopefully be continued and amended.

Sakari Heikkinen is professor of economic history in the Department of Political and Economic Studies at the University of Helsinki in Finland. His publications include Paper for the World (2000).  His current research interests are long-term economic growth in Finland compared with Sweden, as well as labor markets in Finland and Sweden during the Great Depression.

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