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But ultimately, the declining population curve foretells the end of one of the traditional mainstays of the Japanese economy—the tiny, back-alley "cottage industry" with two or three employees, depending for its survival on cheap labor and sweatshop conditions. To continue to compete internationally, Japanese business from now on will have to put its main emphasis on modernization and increased productivity.
Double the Income. Prime Minister Hayato Ikeda's government has proposed a ten-year plan to provide many of the needed changes. But to divert the voters' attention from Japan's current political upheavals, Ikeda publicly laid greatest stress on the plan's goal of nearly doubling Japan's per capita income by 1970.
This encouraged an orgy of business expansion in anticipation of an even more glorious domestic boomu. As a result, imports of machinery became so heavy that by mid-1961, ships were literally queued up in Japan's harbors, sometimes had to wait as long as 30 days to be docked for unloading. This, plus the U.S. recession, which slowed exports, caused Japan's trade deficit to jump to a record $1.5 billion last year.
News of the trade deficit chilled the stock market, and by December prices on the Tokyo Exchange had plummeted 30%. For months the market had been rising so joyously that investors forgot it could ever decline, and common people had become such avid speculators that brokerage houses opened offices in department stores for the convenience of housewives. Reluctantly, Ikeda raised interest rates to discourage further borrowing for expansion and put curbs on imports. As a result, the trade deficit has gradually begun to improve and stock prices have started recovering.
Nevertheless, the scare has started many Japanese businessmen off on a new boom—the "gloom boom." They fearfully suggest that their businesses will collapse because their annual growth rate may fall from 30% to a mere 15%. And though Japan's foreign trade balance in December was the most favorable in a year, many Japanese darkly suspect that they are being frozen out of international trade. In Europe's Common Market, they see only a wall designed to keep Japanese goods out of Europe. The 19-nation Geneva agreement on textiles published last week will, in fact, open new markets in Europe for Japanese cotton goods, but this does not pacify the Japanese, who have focussed instead on the attempts of the U.S. to reduce its imports of Japanese textiles. In Washington last week, a delegation of Japanese businessmen testified that if the U.S. adopts President Kennedy's proposal to put an 8½¢ per pound surcharge on imported cotton textiles, Japan will reduce its heavy purchases of U.S. raw cotton.