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9. GOJ Aid, Defence Procurements, and Economic Change

By the time Camp Hansen was completed in October 1962 the environment in Okinawa had changed greatly. A massive overhaul of the Japan-US Security Treaty that occurred in 1960 was less a factor in this than a change in the US administration. John F. Kennedy was now President, and while hawkishly intent on maintaining bases in Okinawa, he believed that boosting economic and social welfare and allowing people to freely vent reversionist sentiments was a better way of achieving this than by authoritarian rule.[1] Kennedy enunciated his new silk glove policy in meetings with Japanese Prime Minister Ikeda Hayato in June 1961. On 19th March 1962, Kennedy gave the reversion movement in Okinawa and Japan proper words they had long waited for, stating "I recognise the Ryukyus to be a part of the Japanese homeland and look forward to the day when the security interests of the Free World will permit their restoration."[2] In the interim, he advised, and without specifying a time frame, it is necessary to "minimise the stresses" that will accompany reversion.[3] Kennedy was encouraged to make this radical statement because of two factors. Firstly, he had studied the recommendations of a task force sent to Okinawa in late-1961.[4] These stressed the island's irreplaceable military value in the Western Pacific, cautioning that while the US possessed exclusive control, how effectively US forces there could operate depended heavily on the good will of the Okinawan people and tacit cooperation of the Japanese.[5] Furthermore, with the exception of a "small group of businessmen who benefit substantially from our [US] presence," most desire return to Japan.[6] Avoiding reversion talk was just no longer feasible.[7]

In the second part, Kennedy had discussed Okinawa with Ikeda in a series of secret meetings. Ikeda claimed "no intention of seeking restoration" of Okinawa "or interfering…with US administration."[8] On the contrary, he argued that it was the poor economic situation in Okinawa, and particularly a heavy tax burden on the local people, that created pressure for reversion, and that if the GOJ was to assist Okinawa economically it might ease such pressure."[9] Clearly, Ikeda was not telling the whole truth, but if the GOJ kept its distance from Okinawa whilst providing the proposed healthy amounts of financial assistance to be directed into education, health, pensions, and other non-military areas as the US felt appropriate, Kennedy saw few problems, only benefits. The advice of the Kaysen report was that a formal mechanism be set up to coordinate GOJ aid and facilitate bilateral cooperation. This was finally manifested in April 1964, with establishment of Consultative and Technical Committees.[10] The USG would first provide the GOJ with a list of aid proposals. The GOJ would review this and submit a list of what could be covered by GOJ funding to the Consultative Committee in Tokyo.[11] Once agreed the list transferred to the Naha-based Technical Committee, where minute details were then thrashed out.[12] The Technical Committee was also a three-person organ consisting of the High Commissioner of the Ryukyus, a GOJ representative designated by the Prime Minister's Office, and the GRI Chief Executive or his representative.

As Fig. 5 [GOJ and USG Aid Relative to the GRI Budget, 1961-71] illustrates, GOJ financial assistance rose to a large amount within a short period of years.[13] What is of significance long-term is the role of USG and GOJ aid as a percentage of the total GRI budget. Prior to the introduction of GOJ aid USG assistance covered on average 8-15% of the GRI budget with the remainder, as Ikeda argued, derived from local taxation. With the influx of GOJ aid, particularly after 1966, local taxpayers began to carry a lighter tax burden while the GRI had more funds to spend or invest across the board. In 1971, GOJ and USG assistance together accounted for 40% of the GRI budget. GOJ financial transfers play a huge role in the Okinawan economy today, in 1998 constituting 1,298-billion-yen, or 46.6% of total external revenues.[14] Some argue that dependency on Tokyo hand-outs since 1972 is up for a rethink. Clearly, the GRI was able to finance its activities with less subsidies than the Okinawa Prefectural Government (OPG) currently relies on.

Economically, the 1960's were stranger than fiction. GRI finances benefited from GOJ aid inputs in the mid-1960's, allowing an expansion of public services and improvements to key public infrastructure like roads, schools, and hospitals. In addition, in 1961, as part of Kennedy's liberalisation initiatives, All Nippon Air was permitted to conduct daily commercial flights to Naha, spawning a tourist industry that came to rival and overtake US bases in revenue derived. In fiscal 1961, over 25,000 people visited Okinawa, spending $6.7-million, but by 1970 this had risen to 165,400 people spending $32.4-million.[15] The GRI set up a Tourist Development Board to promote further expansion of hotels, golf courses, souvenir shops, and the like.[16] The outbreak of the Vietnam War had a profound effect on Okinawa. From 1965-1968 the economy underwent rapid expansion; a huge increase in personal consumption expenditures and private domestic capital formation driven by enormous military expenditures,[17] large amounts of GOJ financial aid, and foreign investment. One can get a sense of the war's impact by considering that over a 4-year period from 1965-1968 military expenditures in Okinawa alone came to $663-million[18] while the amount of land rental payments from the USG over the entire 27-year occupation period did not exceed $150-million. Regardless, all of these elements combined to produce abnormally high Gross National Product (GNP) growth rates [See Fig. 6 Gross National Product of the Ryukyus, 1955-1970]. In 1965, 1966, and 1967, GNP growth in real terms was 13%.[19] Even as defence expenditures tailed-off and uncertainty regarding an imminent reversion to Japan approached in 1970, GNP growth was 11.1%.[20] This is important because it shows that the 1970 Okinawan economy was less dependent on US bases than in the 1950's in terms of contribution to GNP. Not that there was any guarantee that things would stay that way.

Another major development was the shift in the structure of employment by industry in the mid-1960's [See Fig. 7 Employment by Industrial Sector, 1950-75]. In 1965, for the first time, the number of persons involved in agricultural activities dropped dramatically. Over the next ten years the figure would plummet by 60% again, thereafter stabilising at about 60,000 persons for the next two decades. By 1999, primary sector employment had fallen again to just 40,000 persons, or 7% of a total labour force of 565,000.[21] Obviously, military land expropriations in the postwar period significantly reduced the amount of land available for agricultural activities, necessarily putting farmers and many people dependent on forest access out of work, but when one considers that the USG finished acquiring land by the early-1960's, and that there was only ever a maximum of 20,000-acres of good quality arable land within the confines of military bases out of at least 90,000-acres on Okinawa, one might become flummoxed by the exodus from agriculture. Since 1972, there has been a drop in the cash value of staple Okinawan crops like sugar cane, making farming for many too many hours for too little reward. It is also the case that many farmers took advantage of high land values when selling to tourist developers. Clearly, the labour force has increased by at least 160,000 persons since 1965. While unemployment rates of 10% or above have not been uncommon over the post-reversion period the bulk of the additions to the labour force since 1965 have been absorbed by the construction industry and into most categories of the tertiary sector. This latter trend is, at least, a little easier to explain.

Firstly, the base-building programme of the 1950's sparked a highly-integrated construction industry. Although technical skills had to be acquired Okinawa now had a well-trained work force at ground level, major construction firms at the entrepreneurial level, and access to raw materials. By the time base-building and modernisation was completed in the mid-1960's, however, GOJ financial aid was in flow, boosting (kokyo jigyo) public works projects. This has not only continued after 1972, but dramatically increased. Since reversion the GOJ has directed over 6-trillion-yen into public works in Okinawa.[22] Add to this the construction demands of the private sector, particularly a tourism industry that has seen a meteoric rise as a money-making business. This latter industry is certainly burdened with the responsibility for an employment structure by industry that is abnormally top-heavy in the areas of retailing and services.

Tertiary sector work accounts for over 72% of the total working population,[23] though Okinawa is by no means unique in having such a structure. Tokyo is more top-heavy in terms of tertiary sector importance and absence of a primary sector, yet it provides revenue for 90% of its expenditures while Okinawa's self-financing power is 50% below that.[24] Okinawa's economy in the postwar period developed around the bases, and to a great extent, especially in base-heavy shi-cho-son, still relies very much on them for GOJ financial inputs rather than direct US forces spending as during the Vietnam War. Since 1972, tourism has replaced and exceeded bases at the heart of the economy as a job creator, and GOJ financial transfers the main engine of construction and public sector employment. The problem with this is that a three-decade-long shift to a largely non-goods producing economy, yet one systemically dependent on subsidies, has created a less robust economy than before 1972. The danger surely inherent revolves around a potential shift in US foreign policy in the coming years and the need or otherwise for overseas military bases to the extent currently manifest in Okinawa. The relocation of the US Marines or base closures will necessarily result in a reduction in GOJ subsidies for Okinawa, which in turn hits municipal finances and the construction industry. Okinawa’s economy has little to fall back on. Likewise, tourism has peaked, or at least reached a level close to it. Economic fragility is an issue that will affect all Okinawans over the next quarter-century and the prognosis is not positive.



[1] A set of recommendations presented to the Senate Committee on Foreign Relations in November 1959 (known as the 'Conlon Report') advocated a similar approach and, of course, had been disliked intensely by the Department of Defence. Its policy recommendations on Northeast Asian affairs, and specifically Okinawa, were written by Robert Scalapino. In essence, the report argued, the situation in the region looked unlikely to change in the immediate future. As such, the maintenance of US bases in Okinawa was necessary. At the same time, however, it advised an integration of political and military requirements where possible. Since it was likely agreement with Japan on the return Okinawa would be secured at some point in the future, but given the necessity of keeping the military bases after such a reversion of administrative control, necessary political and economic steps should be taken now. As such, the US had to recognise that reversion was going to happen. 'United States Foreign Policy in Northeast Asia,' Section Four of a study entitled 'United States Foreign Policy in Asia,' (The Conlon Report) prepared by Conlon Associates, Ltd., presented before US Congress Senate House Committee on Foreign Relations, 86th Congress, 1st Session, 1st November, 1959. Okinawa fukki no kiroku, 621-625. For analysis see Miyasato Seigen, Amerika no Okinawa tochi, 126-129.

[2] USCAR, Civil Administration of the Ryukyu Islands Report for Period 1st July 1969 to 30th June 1970, Vol. 18 (Naha: HiCOM, USCAR, 1970). In Japanese "Watashi wa Ryukyu retto ga Nihon hondo to ichibu de aru koto o mitomeru mono de…" Okinawa fukki no kiroku, 382-383.

[3] Ibid. The GOJ for its part elaborated an entire policy out of this latter phrase. The whole concept of minimising stresses became known as ittaika. The two-kanji compound in the most neutral of interpretations has the sense of the coming together of two (or more) bodies into one whole. 

[4] Technically known as Task Force Ryukyus, but commonly referred to as the Kaysen Group since its chairman was the Harvard economist and (from 1961-1963) Deputy Special Assistant for National Security Affairs, Carl Kaysen.

[5] Report and Recommendations of the Task Force Ryukyus. December 1961. President's Office Files: Countries - Ryukyu Islands, Task Force Report, 11/61-12/61 (A), Box 123b, John F. Kennedy Library (1961), iii.

[6] Ibid., iii.

[7] That is not to say Kennedy did not have his detractors. There was opposition to a liberalising of US policy towards Okinawa within the DoD, Congress, and on-island in the form of the new High Commissioner Paul Caraway. All sought to delay, filibuster, or vote down any policy that diluted the exclusivity of US control of Okinawa. This simply served to delay the policies Kennedy put in place, not avoid them.

[8] 'Memorandum of Conversation, Washington 21st June 1961,' US DoS, FRUS, 1961-1963: Vol. 22, China; Korea; Japan (Washington, DC: US GPO, 1996), article 338. http://www.state.gov/www/about_state/history/frusXXII/

[9] Ikeda's argument was very interesting. The memorandum reads: "He [Ikeda] felt…that within the framework of continued US administration it was important to minister to the economic needs of the people and give them treatment at least equivalent to that accorded Japanese nationals in the poorer prefectures of Japan. He pointed out that the tax burden of the Okinawa citizens was far higher than that borne by the people of the poorer Japanese prefectures. He mentioned that in Tottori prefecture grants by the central government provide 90% of the prefectural revenues, with only 10% derived from local taxes. In contrast, 80-90% of the Ryukyuan expenditures are paid for by local taxes, with the remainder coming from US assistance…The Prime Minister concluded that the best way to diminish reversionist desires is to provide the Ryukyuans with treatment comparable to that which they would receive if residing in a Japanese prefecture. Ibid.

[10] 'Exchange of Notes Between the Governments of the United States and Japan Pertaining to the Establishment of the Japan-US Consultative Committee and the Technical Committee, Tokyo, 25th April, 1964,' USCAR, Civil Administration of the Ryukyu Islands Report for Period 1st July 1963 to 30th June 1964, Vol. 12 (Naha: HiCOM, 1964), 269-271.

[11] The Consultative Committee was the most high-powered of the two, with the GOJ represented by the Minister for Foreign Affairs and the Director General of the Prime Minister's Office, with the US Ambassador to Japan representing Washington.

[12] 'Procedures to Implement the Cooperative Arrangement Between Japan and the US in Providing Assistance to the Ryukyu Islands,' 25th April 1964. USCAR, Civil Administration of the Ryukyu Islands Report for Period 1st July 1963 to 30th June 1964, Vol. 12 (Naha: HiCOM, 1964), 273-274.

[13] As previously stated, GOJ assistance was permitted in areas deemed non-controversial by the USG. By and large GOJ aid went to agriculture and forestry (including farming, livestock, land cultivation programmes, the agricultural banks, forestry and fishery funds, etc), public works (including forestry development and maintenance, land surveys, public housing, channel markers, weather facilities, etc), social welfare (including medical facilities and equipment, welfare facilities for children, welfare loans, fire services, etc), education and culture (including school equipment, books, textbooks, school supplies, scholarship loans, social education facilities, etc), and technical assistance (including national scholarships, physician and dentist dispatch, educational consults, teacher training, etc). Pretty much all of the above elements were administered by the GRI. Beyond that, there were some funds administered by the Nampo Doho Engokai (NDE), mostly centred around school supplies, books for community centres, and the like. There were also GOJ payments in civil service and military pensions, and annuities for war-bereaved families, and small amounts in solatia. 

[14] Okinawa Shinko Kaihatsu Kinyu Koko, edited. Okinawa keizai handobukku 2000 nendo (Naha: Okinawa Shinko Kaihatsu Kinyu Koko, 2001), 17.

[15] USCAR, Civil Administration of the Ryukyu Islands Report for the Period 1st July 1969 to 30th June 1970, Vol. 18 (Naha: HiCOM, 1970), 82.

[16] In 1998, tourism was worth 445-billion-yen, or 16% of all external revenues, and US bases about 187-billion-yen, or 6.7% of external revenues. Okinawa keizai handobukku 2000 nendo (2001), 17.

[17] Including purchases of goods and services, local worker wages, and military personnel expenditures from those stationed on Okinawa or on short-term 'rest and recuperation.' For a more comprehensive breakdown see Naya Seiji, 'The Vietnam War and Some Aspects of its Economic Impact on Asian Countries,' The Developing Economies 1 (1971), and USCAR, Civil Administration of the Ryukyu Islands Report for the Period 1st July 1966 to 30th June 1967, Vol. 15 (Naha: HiCOM, 1967).

[18] Total US military expenditures on goods and services in the Asian region for 1967 was $2,050-million. This constituted close to 47% of US military expenditures worldwide. Of this figure, $564-million was spent in Vietnam itself, $538-million in Japan, $286-million in Thailand, $237-million in Korea, and $188-million in Okinawa. Naya Seiji, 'The Vietnam War and Some Aspects of its Economic Impact on Asian Countries,' The Developing Economies 1 (1971), 33.

[19] USCAR, Civil Administration of the Ryukyu Islands Report for the Period 1st July 1966 to 30th June 1967, Vol. 15 (Naha: HiCOM, 1967), 53.

[20] USCAR, Civil Administration of the Ryukyu Islands Report for the Period 1st July 1969 to 30th June 1970, Vol. 18 (Naha: HiCOM, 1970), 41.

[21] Okinawa keizai handobukku 2000 nendo (2001), 10.

[22] Ibid., 71.

[23] Ibid., 10.

[24] Higa Teruyuki, 'The Cycle of Dependency: Okinawa's Economy,' in Islands: A Challenge for the Future - Global Networking of Island Communities, Proceedings of the Journalists Global Islands Symposium (J-GIS) '93, 24th to 28th August, (Naha: J-GIS '93 Organising Committee, 1993), 95.


 

 


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