Japan: the Miracle Years Hbr Case

Topics: Investment, Economics, Japan Pages: 2 (609 words) Published: November 6, 2011
Japan: The Miracle Years

What is the so-called “Japanese Miracle” - How did the Japanese achieve it?

GNP increased about 5 times in a span of about 20 years. The country saw a 10.1% compound rate of growth in 17 years. How:

* Industrial Policy: government weighs in on what industries are winners vs. losers, then supports the winners. * Govt agencies worked together to help shape the future growth and create stability: Ministry of International Trade, Ministry of Finance and Economic Planning Agency. * Only one political Party (LDP – Liberal Democratic Party) / govt remained uncorrupted * Central bank guided private banks as to what industries they should make loans to. This was all based on economic factors: look for industries with high elasticity of demand, and therefore potential to generate high income. For example: electronics, cameras, cars, oil refinery. The expanding industries had high demand and a high level of technological change. So, Japan can jump in on it and change, while other countries are stuck with the old technology. * Japan saved more and consumed less. As such, saving money and investing more serves as a catalyst for greater economic growth. (Exhibit 1: in US, we consume about 70% of GDP; Japan only consumed 63% in 1954, and only 50% in 1971) * Japan also focused less on agriculture and more on industrialization. This helped GDP grow faster as well. (Exhibit 2: US used 4% of its workforce on industry, Japan used 7%) * # of unemployed remained stable, but population steadily increased. As such, Japan was able to decrease their unemployment rate over time - only 1% compared to 5% in the US. Greater employment is another factor in growth (Also in Exhibit 2) * Exhibit 3 - Net Supply of Industrial Funds by Source:

* Own capital / AKA retained earnings. In 1970, a large % of investment in Japan comes from retained earnings; the country is paying out less in terms of dividend payments. * Little...
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