Development of the Japanese Economy
― Development, Japanese/Asian Style ―
For Students in the EDP&M Program
Shigeru T. Otsubo* GSID, Nagoya University
(w/ inputs from Prof. A.Furukawa, Ritsumeikan Univ.)
For Students in the Economic Development Policy and Management Program Prof. Shigeru T. OTSUBO The purpose of this presentation is four-fold: 1) to introduce the macroeconomic development process of the postwar Japanese economy (the so-called “Miracle Recovery”); 2) to explore the Japan-specific (mostly microeconomic) elements of a market system that supported her rapid development; 3) to show the need for adjustments in the ‘Japanese-style market system’ in the post-catch-up era; and 4) to demonstrate the evolution and revolutions in economic systems underlying a development process.
* The presenter wishes to acknowledge: i) material inputs provided by Prof. Akira Furukawa, Ritsumeikan University, and ii) valuable comments provided by Ms. Debra J. Saito, Economist, Federal Reserve Bank of New York.
Objectives of This Presentation
The purpose of this presentation is four-fold:
to introduce the macroeconomic development process of the postwar Japanese economy (the so-called “Miracle Recovery”); to explore the Japan-specific (mostly microeconomic) elements of a market system that supported her rapid development; to show the need for adjustments in the ‘Japanese-style market system’ of the post-catch-up era; and to demonstrate the evolution and revolutions in economic systems underlying a development process.
To start with, macroeconomic factors that supported Japan’s strong post-war economic recovery such as high investment ratios backed by savings mobilization, technology progress, flexible labor supply, and favorable external conditions will be reviewed. Then, market practices of a long-term nature that were often referred to as elements of the ‘Japanese-style market system’ are surveyed. These elements include labor market practices, keiretsu business relations, a main-bank system, and business-government relations that feature detailed regulations and industrial policies. The long-run macroeconomic policies conducted by the Japanese government including the ‘medium-term economic plans’ will be introduced. The post-WWII Japanese economic development was a process of catch-up to the other industrialized economies. Economic policies and corporate strategies were geared to this utmost mandate in our minds—to catch-up. This general goal was shared by all economic agents as a national consensus. Macroeconomic policies, particularly monetary policies, were conducted in order to provide funds to strategic sectors for economic development. The Japanese-style market system functioned fairly well in strengthening international competitiveness among the tradable-goods-producing industries. Although the domestic markets were heavily protected in the early stages of Japan’s post-war development, the potential threat of global competition provided sufficient incentives for productivity growth as Japanese industries looked for export markets. On the other hand, investments in nontradable sectors were not sufficiently funded. As a result, development of non-tradable sectors lagged behind. Elements of the Japanese post-war development system that were competition-restricting in nature functioned well during her catch-up process. When the catch-up process was over, however, those competition-restrictive elements became harmful. With the energy crises of the 1970s, the Japanese economy went into an era of transition. In the 1980s, limited productive investment opportunities in the domestic market coupled with loose monetary policy in the face of the yen’s rapid appreciation fueled speculative investments in securities and property markets, creating a financial bubble. After the bubble burst in the early 1990s, throughout the so-called lost...
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