Transcript Japanese Economy A 2011 Fall

Japanese Economy A
2012 Fall
Seinan Gakuin University
Noriaki EZOE
Professor Ph.D.
Economics Department
Seinan Gakuin University Japan
Mail address: [email protected]
Homepage address: https://w3.seinan-gu.ac.jp/~ezoe/
1
Part Ⅰ
Chapter 4 Japanese Economic History,
Postwar Development (1945 – 1970s)
What you will learn in this chapter
1 Reform and Postwar Recovery
:1945--1949
2 Analyzing Economic Growth
3 Postwar high growth : 1950s—1970s
Japanese Economy
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1 Japanese history: 1945—1970ｓ
Postwar Recovery and growth
Showa
1945 : Surrendered, Allied military occupation began
1947 : Japan adopted a new constitution
1952 : The Treaty of San Francisco ：The Allied
occupation ended
1956 : Japan was granted membership in the United
Nations .
1964 : Tokyo Olympic ：
Japan achieved rapid growth to become the secondlargest economy in the world.
1973 : The high growth ended in the mid-1970s
( Nixon Shock, oil crisis )
1978 : Second oil crisis
Japanese Economy
3
1.1 Postwar Recovery: 1945-1949
The Japanese economy collapsed due to input
shortage. Inflation surged. Living standards
plummeted.
The US occupied Japan and forced
democratization and demilitarization (but later
partly reversed).
Douglas MacArthur,
(1880 - 1964)
head of GHQ
1 Demilitarization : establishment of a new
constitution.(1947)
2 Economic democratization: three reforms
(next)
3 Various forms of democracy: enlarged
1945 Tokyo
voting rights , new education system, and
political system were introduced.
These reforms transformed Japan to a
democratic society.
Japanese Economy
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PP.155-56
Topic : New Constitution 1947
•
•
•
•
•
•
GHQ draft as the base; initial Japanese drafts,
maintaining emperor’s sovereignty, were rejected.
Natural law--social contract among people (preface)
Sovereignty resides with the people
Emperor is the symbol of the state and people’s unity
(without political power).
Basic human rights--not just freedom, but also
guarantee of minimum living standards
Pacifism (Article 9)
Balance of power among legislature, executive and
judiciary
Article 9 Controversy
Article 9 describes ``Pacifism’’.
• Renunciation of war
• No possession of military forces
• Denial of the state’s right of belligerency
Self-Defense Forces Established in 1954
: Is SDF unconstitutional or not ?
Interpretation of LDP Government (until 2009)
--Invasion is prohibited but self-defense is permitted.
--SDF is a minimal power and not military forces
Alternative interpretations of Art.9
--All war and military forces are prohibited, including for selfdefense.
--All war and military forces are prohibited, but Japan has selfdefense rights.
--War and military forces are permitted for the purpose of selfdefense.
Japanese Economy
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Three Economic Reforms
Postwar occupation: economic and institutional restructuring
1 Anti-Trust Measures
the Zaibatsu (Mitsui, Mitsubishi, Sumitomo, Yasuda) were dissolved (1946-
1951) which had controlled the prewar Japanese economy.
At the end of the war, major Zaibatsu groups held about 40 percent of equity
(paid-in capital). The occupation force required the auctioning off of the shares
owned by their holding companies, and thus the Zaibatsu groups were technically
dissolved in 1946 and 1947.
(they were revamped as keiretsu corporate groups mainly tied together through crossshareholding of stock in the aftermath of the Occupation)
The Anti-Monopoly Law (1947) was introduced to maintain
competition.
- --- The aim was the creation of a more competitive economy.
These policies made many markets more competitive, prompted
vigorous investment demand, and enhanced consumer welfare.
Japanese Economy
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2 Land reform (1946 - 50):
Prior to reform, land ownership was highly concentrated.
--All land above 1ha (4ha: Hokkaido) must be sold at the very low price. 6 million
families get the land.
Land reform decentralized ownership in the interest of equalizing income and wealth.
--- The reform establish an owner-farmer system. This contributed to income
equality and political stability .
Problem—economic inefficiency
--Average farm remained small: 1.09ha (1941)0.99ha (1955)
--More incentive to produce? Estimated productivity did not
rise.
--Study shows no difference in rice farmers’ land productivity or
labor productivity (1939-41 data) :
Owned land (3,780kg/ha, 20kg/laborday)
Tenanted land (3,687kg/ha, 19.6kg/laborday)
--- On the other hand, the small lot size has prevented farmers
from taking advantage of scale economies.
Agriculture has gradually become heavily subsidized and has
been placid under numerous government controls.
Japanese Economy
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3 Labor reform (1946)
three labor laws were enacted: the labor union
law, the labor working conditions law, and the
business and labor relations.
Workers were granted the rights to organize in unions and to
engage in collective bargaining. As a result of these changes,
labor unions spread. The percentage of unionized workers
jumped from 3.2 percent in 1945 to 41.5 percent in 1946, and
then to 53.0 percent in 1948.
--- The intent and effect labor reform was to give the
working class a louder voice in corporate management.
Japanese Economy
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Table : recovery period
Japanese Economy
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1.2 Recovery process
High inflation after the war
The supply side: devastation of plant, and infrastructure.
(Damage 25.4% of Japan's national wealth)
---accelerate the recovery of productive capacities
The demand side: the returning soldiers and civilians.
------consumer demand increased
Table 1 shows :
The severe shortage of production combined with a
swelling of demand resulted in rampant inflation.
To tame the inflation, the government took drastic
action : froze prices, and rationed necessities.
But, the government could not combat inflation.
Japanese Economy
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Various Economic Policies
(1946) stimulate the supply side
The Priority Production System: To accelerate the recovery of productive
capacity in major industries, the government directly planned the growth of coal
and steel industries in 1947, which had spillover benefits for the overall economy.
PPS
Industrial Production Index
Dodge Line
Korean War
Source: Historical Statistics of Japan, vol.2, 1988.
Japanese Economy
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(1949) restricting the demand
The Dodge plan (1949) (Economic Stabilization Programs )
The government implemented a balanced budget, suspension of
new loans from the Reconstruction Bank, and the reduction and
abolition of subsidies. The exchange rate was set at $1=360 yen
Washington sends Joseph Dodge(right) ,1948.
a US banker with strong belief in free market and sound budget
(1949) The Shoup tax system :
government revenues were derived
mostly from income tax.
(Prof.Carl Sharp was sent by US president)
As a result, the inflation stopped,
but the economy went into a deflation.
Japanese Economy
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Cold War broke out (1950)
The Early Days of the Cold War
1947: the Cominform was organized by the Soviet Union.
1948 :the blockade of Berlin by the Soviet Union.
Communist power gained in China.
The occupation policy changed.
---The most notable change was the creation of the "Self-Defense Forces." In
addition, the policy of breaking up large companies was not fully carried
through. The priority shifted to strengthen the Japanese productive capacity.
1950: The Korean War broke out.
• Japan received large procurement orders from the U.S. Army .
• The special export demand( although short-term ; until 1952 ) helped the
full recovery of Japan's economy.
Japanese Economy
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2 Analyzing Economic Growth
2.1 Long run economic growth
the history of economic growth in Japan
Steady growth from the Meiji period to World War
II. Figure 1 illustrates.
Three observations (Ito Ch.3).
1. the rapid economic expansion in Japan was not
unique to the postwar era.
2. Japan's growth accelerated between the end of the
war and the oil-price crisis of 1973-74.
3. Japan's economic growth has consistently outpaced
that of the US.
Japanese Economy
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13
Figure : Japan's GNP
12
11
10
9
8
1825 1893 1901 1909 1917 1925 1933 1941 1949 1957 1965 1973 1981 1989
.-------log of GNP (billion yen, 1980 prices); ---- trend of prewar GNP
extrapolated to postwar years; --- peak level of prewar GNP.
Japanese Economy
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Figure : Growth rates of Japan (solid line) and U.S. (broken line).
16
12
8
4
0
-4
1955 1958 1961 1964 1967 1970 1973 1976 1979 1982
Japanese Economy
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Table : Real GNP growth rates of postwar Japan.
1 Japan’s growth was phenomenal.
2 After the oil crisis, it showed the high performances.
3 The trend line of prewar was surpassed by the postwar
line.
1953-55
7.0
1955-60
8.6
1960-65
1965-70
10.6
11.2
1970-75
4.6
1975-80
5.1
1980-85
3.9
We attempts to explain the reasons behind Japan's rapid economic
growth from the end of World War II to 1973, and the reasons for
the slowdown after the first oil crisis.
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2.2 Analyzing sources of economic growth
Why Could Japan Accomplish High Economic Growth?
Economic growth can be viewed from either the demand side
or the supply side. ( Balanced growth can be achieved when
both demand and supply grow without disruptions )
Aggregate demand can be understood as the
definition of GNP:
• Yd = C + I + G + (EX — IM)
(1)
where aggregate demand (Yd) is the sum of consumption
(C), investment (I), government expenditures (G), and
net exports (EM — IM)
Japanese Economy
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2.2 Analyzing sources of economic growth
Why Could Japan Accomplish High Economic Growth?
--Review of Text: Growth Economics-Economic growth can be viewed from either the demand side
or the supply side. ( Balanced growth can be achieved when
both demand and supply grow without disruptions )
Aggregate demand can be understood as the
definition of GNP:
• Yd = C + I + G + (EX — IM)
(1)
where aggregate demand (Yd) is the sum of consumption
(C), investment (I), government expenditures (G), and
net exports (EM — IM)
Japanese Economy
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• Review of Text: Growth Economics
• Supply side:
– Growth is measured as changes in real GDP per capita
• The aggregate production function shows
how productivity (real GDP per worker) depends on
the quantities of physical capital per worker
(K/L)
human capital per worker (H/L)
and the technology (T)
Japanese Economy A
Chapter 4
21
The source approach
Output Growth (GDP) can be analyzed by supply
side: decompose growth of output into growth of
the factors of production.( See Tables)
The source approach demonstrates how the
growth rate can be divided into contributions
from various factors of production. : this approach
answers the question of why Japan grew so fast.
Japanese Economy
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Table :
Source: Denison and Chung 1976a, pp. 98-99.
Factor
Absolute
Relative
Absolute
Relative
Labor
1.85
21.0
1.30
32.5
Capital
2.10
23.8
0.79
19.8
Technological
progress
and residuals
4.86
55.2
1.91
47.8
Total
100
Japanese Economy
100
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Table :
Source: Shinohara 1986, p. 17.
Country
Japan
US
Period
1960 - 1970
1970 - 1980
Average growth
10.62%
4.84%
Factor
Absolute
Relative
Absolute
Relative
Labor
1.59
15.0
1.01
20.9
Capital
3.40
32.0
1.29
19.8
Technological
progress
and residuals
5.53
53.0
2.54
52.5
Total
100
Japanese Economy
100
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Observations
These tables suggest
1 The high growth rate of Japan depends on all
three of the major factors.
2 Capital accumulation was more important
than labor in Japan, in contrast to the US
experience.
3 More than half of Japan's growth is attributed
to "technological progress and residuals.
Japanese Economy
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Review of Text: the savings–
investment spending identity
• savings and investment spending are always equal for the
economy as a whole.
• In a open economy : Y = C + I + G + X - IM, C = Y – T - S,
With these two equations, we can write saving as
S = Y – C – T,
= I + G + X – IM – T.
Hence,
S – I = (G - T) + (X - IM) (**)
In words, accounting identity reduces to
Saving – Investment = Gov’t deficit + Trade Surplus (or
deficit)
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Implications: saving and growth
From (**),
S – I = (G - T) + (X - IM).
The equation dose not imply any causal relationships. But, it gives us
a macroeconomic implication.
This can be interpreted ; (other things being equal),
1. A high saving likely reduces the capital cost of investment, which
sustain a high level of investment. The high level of Investment
makes it possible to adopt the advanced technology, which results in
faster economic growth.
2. A high saving rate will finance government deficits without causing
a high real interest rate or borrowing from abroad.
3. A high rate of saving will produce foreign lending (capital outflow).
This will, in the long run, establish the country as a world lender.
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Some implications for the Japanese economy
Historical facts : In Japan the saving rate has been
consistently high.
- During the 1950s and the 1960s, the first
implication, higher investment, was realized.
- After the oil crisis of 1973-74, investment
plummeted and government deficits grew.
Government deficits has been financed without a
borrowing from outsides.
- In the 1980s, with government deficits reduced
and investment still low, capital outflow soared.
Japan has become a world largest lender.
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Table : Net national saving rates of Japan and selected other
nations, 1960-2000 (Flath; Table 5.1 p. 99)
1960
--73
1974
---79
1980
---89
1990
--2000
1960
---2000
Japan
28.8
22.7
20.4
16.0
20.4
USA
10.5
Germany
France
16.4
9.7
11.3
6.6
10.0
5.7
8.8
7.3
10.6
17.8
16.2
13.2
14.7
6.7
10.8
7.3
8.6
9.7
11.5
12.9
8.2
5.1
4.2
6.4
12.9
15.4
12.5
12.7
9.7
9.9
5.7
n.a.
9.2
Italy
UK
Canada
OECD
n.a.
Recent trend : Japanese saving rates has fallen rapidly.-- . Ageing Population
Japanese Economy
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The Savings–Investment Spending Identity
Investment spending (I) = National savings (NS)+
Capital inflow(KI) in an open economy
I = SPrivate + SGovernment + (IM − X)
= NS + KI
Next figures
Japanese Economy
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Figure :The Savings–Investment Spending Identity
(b) Japan
(a) United States
Share
of GDP
25%
20
15
10
5
0
–5
–10
–15
Share
of GDP
25%
20
Capital
15
inflows
10
5
Private
0
savings
–5
Budget
Capital
Investment deficit
–10 Investment
outflows
Savings
–15 spending
spending
Budget
deficit
U.S. investment spending in 2007 (equal to
18.8% of GDP) was financed by a combination
of private savings (15.7% of GDP) and capital
inflows (5.2% of GDP), which were partially
offset by a budget deficit (−1.6% of GDP).
Private
savings
Savings
Japanese investment spending in 2007 was
higher as a percentage of GDP (23.8%). It was
financed by a higher level of private savings
as a percentage of GDP (32.1%), which was
offset by both a capital outflow (−4.9% of
GDP) and a relatively high budget deficit
Japanese (−3.4%
Economy of GDP).
31
The international Background: 1950s – 1970s
• The international economic order contributed to the Japanese economic recovery
and growth.
Cold War
The instability of the 1920s and 1930s was replaced with a bipolar world in which the
United States and the Soviet Union opposed each other in both geopolitical and
ideological arenas.
International Trade system
The United States designed to encourage trade through its sponsorship of the United
Nations, the World Bank, the International Monetary Fund and the General
Agreement on Tariffs and Trade .
Technology Transfer
American companies were encouraged to license technology to Japanese companies
in the new international environment. Japan redirected its trade towards the huge
and expanding American market.
Japanese Economy A
Chapter 4
32
3 High Economic Growth
Mid 1950s to early 1970s
Overview
Rationalization (1950s)—new technology and investment for
productivity & cost reduction
Quality and productivity movement (private sector-led)
From political conflicts to economic growth (1960)—“Income
Doubling Plan”
Re-integration into the world economy
Rising living standards
Negative aspects—pollution, traffic congestion…
Japanese Economy
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Post WW2 Real Growth
14%
12%
10%
8%
Stable growth period
6%
4%
2%
0%
-2%
No growth period
High growth period
Shift from political to
economic agenda
Yen floats
2nd Oil Shock
1st Oil Shock
Bubble collapses
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
1962
1959
1956
1953
-4%
Ohno PP.162-65
Rationalization (1950s)
• Korean War inflation reduced Japan’s cost
Anti-rationalization
negotiation, 1955
competitiveness, especially coal & steel.
• Competitiveness was regained by investing
in mass production and new technology.
Industry must exit if uncompetitive (coal).
• Funds: private company profits from the
Korean War boom.
• Tight macroeconomic policy under a fixed Anti-rationalization rally,
1961
exchange rate to force rationalization.
• 1956 Economic White Paper: “We are no longer in the
postwar period”—the recovery phase is over, new
sources of growth must be found.
Quality and Productivity (Kaizen) Movement were
Private-sector Driven
• Private sector, not government, led quality and productivity
improvement; private absorptive capacity was very strong.
• NPOs were created by the initiative of top executives of
private firms with nationwide networks for dissemination
• Cooperation between managers & workers within factories
• Collaboration among government-industry-academia
• Productivity techniques imported
from the US (mostly top-down,
statistical) were revised to fit
Japanese production environment
(bottom-up, mindset change,
continuous effort by teamwork)
Role of Private Sector Organizations in Introduction,
Development and Diffusion of Foreign Technologies
US & European
Countries
Private Sector
Organizations
Private Companies
(JPC, JUSE, JMA, etc.)
(Technology Transfer)
(Technology Transfer)
•Dispatch of study
missions to US & Europe
•Invitation of foreign
advisors
•Translation of foreign
literature into Japanese
•Study on adaptability of
new technology (by
committees and working
groups: industry-govt.academia joint research)
•Trial application and
modification of technology (pilot projects)
<To Learn>
<To Test & Modify>
•Guidance and advices
•Education and training
•Qualification and
certification system
•Award system
•Enlightenment and
movement
<To Diffuse>
Source: Adapted from Tsuyoshi Kikuchi “The Roles of Private Organizations in the Introduction, Development
and Diffusion of Production Management Technology in Japan” (original paper published in the Bulletin of
the Graduate School of International Cooperation Studies No. 4, 2011, Takushoku University).
Ohno PP.177-78
Labor Surplus Ends around 1960
Job offer/job seeker ratio
Wage Gap by Employment Size
(Public job matching service)
(Large firms’ wage=100)
8
7
Middle school graduates
6
High school graduates
100
80
5
4
3
2
500+
60
100-499
40
30-99
5-29
20
1
0
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
0
1955
1960
1965
1970
Unemployment Ratio
3.0
2.5
2.0
1.5
1.0
0.5
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
1959
1958
1957
1956
1955
1954
1953
0.0
Golden Eggs—
some left,
others stayed
Internal Labor Migration Model
Lewis, Fei-Ranis, Harris-Todaro
Modern Sector
Traditional Sector
Labor
migration
Poverty
Surplus labor
Mutual help for
survival
Formal jobs
Informal jobs
Unemployment
Pool of Underclass
Rural Villages
Urban Centers
Not all migrants can find jobs. Most of them go to the unstable informal sector or join
the pool of the unemployed.
Japanese SMEs and “Dual Structure”
Large firms
SMEs
Migration
Agriculture
High & stable salary
Life-time employment
Parent-subsidiary relation
Low wage
Job insecurity
Exploited by large firms
• SMEs’ problems—low productivity, low wage, job instability 
SME Policy for protecting weak SMEs
• As the labor market tightened around 1960, the wage gap
began to narrow. Government also subsidized farmers.
• Today, high-tech SMEs are considered as the source of
Japanese competitiveness (but not all of them).
Consumption Boom—Cause or Effect?
Three C’s
(1960s)
Three Divine
Devices (late 1950s)
Household
Ownership Ratios
of Consumer
Durables
Ohno P.185
3.3 Economic Results
• Results : Rising living standards, consumption boom
and new life style.
-- great increases of GDP, per capita income, and real
wages (low unemployment rate) Japan as a Developed
Country (see Table 3 )
• Negative Side Effects
– Poor Infrastructures--- traffic congestion– unequal development among geographic regions and
among economic sectors
– Environmental pollution (Minamata Disease and Itai-Itai
Disease in the late 1960s)
– the high rate of inflation
Japanese Economy A
Chapter 4
42
3.4 The end of rapid growth
Nixon Shock(1971) :
U.S. stopped the convertibility of the dollar into gold.
The yen exchange rate up.
Oil crisis (1973,1978)
War in the Middle East caused the price of oil to rise.
These external shocks brought Japan's rapid growth
to an end. The economy grew at slower and steadier
rates.
Japanese Economy
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Real GDP Growth (Fiscal Year – April to March)
Average 1956-73 9.1%
Average 1974-90 4.2%
Average 1991-2010 0.9%
Economy
Source: The System of National Accounts site,Japanese
Cabinet
Office.
44
The three major factors in the end of the postwar
Japanese miracle
-The oil crises,
-The decrease in investment,
-and The slowdown in technological progress
They were not independent of one another.
The real reason of Japan's growth rate fall ?
Japan finally caught up with the United States and the Western
European countries technologically at some point in the mid 1970s.
Since it is harder to develop a country's own new technology than
to merely obtain licenses, then growth rate fall.
Japanese Economy
45
Table
Japan during oil crises.
1st Oil crisis
GNP growth
inflation
2nd oil crisis
GNP growth
inflation
1971
4.5
-0.8
1977
5.3
11.1
1972
8.5
0.8
1978
5.2
13.1
1973
7.9
15.7
1979
5.3
9.1
1974
-1.4
31.6
1980
4.3
7.2
1975
2.7
3.0
1981
3.7
11.0
1976
4.8
5.0
1982
3.1
7.9
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46
Ohno P.187
Growth
Inflation (12-month
change)
MonetaryMonetary
Growth
andand
Inflation
(12-month
change)
40%
M2+CD
WPI
CPI
30%
20%
10%
0%
-10%
1965Q1
1966Q1
1967Q1
1968Q1
1969Q1
1970Q1
1971Q1
1972Q1
1973Q1
1974Q1
1975Q1
1976Q1
1977Q1
1978Q1
1979Q1
1980Q1
1981Q1
1982Q1
1983Q1
1984Q1
1985Q1
1986Q1
1987Q1
1988Q1
1989Q1
1990Q1
1991Q1
1992Q1
1993Q1
1994Q1
1995Q1
1996Q1
1997Q1
1998Q1
1999Q1
-20%
Bubble
Bretton Woods
fixed dollar
system ends
1st oil shock
General float
begins
2nd oil shock
Bubble collapses
Plaza Agreement
Japanese Economy
47
Growth Slowdown in the 1970s-80s
• Japan’s economic maturity—income reached
the world’s highest level
• Oil shock and global stagflation
• General floating of major currencies
Catching Up: Real Per Capita GNP
(1995 dollars, conversion at actual exchange rate)
50000
100
40000
Per Capita Income at PPP
(US=100, price-level
adjusted)
80
30000
US
60
20000
Japan
10000
0
US
W.Ger.
France
Japan
UK
Italy
40
20
1950
1955 1960
1965 1970
1975 1980
1985 1990
1994
10582 12060 13046 15454 17310 18754 21392 23858 26744 28157
US
Japanese
Economy
15658
28912 40421
Japan 776 1336 2127 3984 6962 11676 16486
0
1955
1965
1975
1980 48
12
10
8
6
4
2
0
-2
-4
Japanese Economy
General machinery
Metal products
Nonferrous metals
Iron and steel
Ceramics etc.
Oil and gas
Precision machinery
Transport machinery
Electrical machinery
McKinnon-Ohno (1997) chap.2
Chemicals
Paper and pulp
Wood products
Textiles
Food
Productivity Slowdown
(estimated by labor-material Cobb-Douglas prod. func.)
Productivity Change by Industry (%/year)
1954-73
1974-90
49
Conclusion
Factors of growth
(1) The imported foreign technology
(2) The high saving rate
(3) large supply of high-quality labor
(4) The sound monetary and fiscal policy:
The reasons of the high growth:
- a sustained period during , the prices of the raw materials and
agricultural commodities which Japan had to import were relatively
low.
-sound policy decisions by Japan's monetary and fiscal authorities
through the 1950s and the 1960s,
-and a high saving rate, which provided sufficient funds to support a
high investment rate.
Slow down:
economic maturity—Japan caught up with the
developed countries technologically.
Japanese Economy
50
References
Dadid Flath [2005], The Japanese Economy, Oxford
University Press.
Takatoshi Ito [1992], The Japanese Economy, MIT
Press.( Ch.3)
Morishima, M. [1982], Why Has Japan Succeeded?
Cambridge University Press.
Kenichi Ohno[2006], The Economic Development of
Japan, GRIPS Development Forum.
Reischauer, E. [1988], The Japanese today, Harverd
University Press.
Japanese Economy
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