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The Growth Accounting Equation:

Shigeto Tsuru in his Japan's Capitalism: Creative Defeat and Beyond provides an analysis of the sources of changes in production as a guide to interpreting the historical record of production and resource utilization in Japan.

%Q (growth in capacity) =
(3/4)%L (growth in labor input) + (1/4)%K (growth in capital stock)
+ Growth Due to Technical Change

A comparison of the sources of U.S. and Japan's economic growth:


U.S. growth 1900-1986

4.2% = annual average rate of growth of output

%Q = (3/4)(2.8) + (1/4)(1) + 1.85

= 2.1 + 0.25 + 1.85 = 4.2

Japan 1970-1989

4.8% = annual average rate of growth of output

%Q = (3/4)(0.4) + (1/4)(11.6) + 1.5

= 0.3 + 2.9 + 1.5 = 4.7 (difference due to independent rounding)

Recovery After WW II

Shigeto Tsuru notes that the end of the war brought about a net increase in the population and labor force in Japan. The civilian labor force in Japan itself increased by 7.1 million due to demobilization, 2.6 million due to repatriation, 1.6 million due to release of workers from the armaments industries in Japan. Also there may have been an increase in capital devoted to civilian production. However, the dissolution of the zaibatsu (financial cliques) and banning of those associated with the wartime regime may have reduced the availability of managerial and entrepreneurial talent. The intended dismantling of productive capacity would have severely reduced the stock of capital.

Important Commissions, Reforms and Legislatiion After WW II

Major Shifts in Policy:

When the U.S. became worried that Japan would fall under the control of Communists many of the policy measures previously supported, such as the role for unions, were reversed. This period was called the Era of the Reverse Course.

Harrod-Domar Growth Model

The Harrod-Domar Growth Model provides some insights into the mechanism of economic growth and development.

I=Investment, S=Savings, K=Capital Stock
I = S
I/K = S/K = (S/Y)/(K/Y)
g = (savings rate)/(capital output ratio)

The Era of the Miracle Economy

Recent stories concerning the Japanese economy

Privatization of Japanese National Railways

The Economist, October 12, 1996, "Japan's Track Record," p. 72

In 1987 Japan set up the JNR (Japanese National Railways) Settlement Corporation to clear up the Y25.5 trillion ($176 billion) in debts of JNR. JNR was broken up into seven companies but the shares were held by the Settlement Corporation. The Settlement Corporation also got one fifth of the land of JNR, worth at that time Y7.7 trillion. The value of the land has now fallen to Y4 trillion. Only two of the companies have been privatized, JN East (serving Tokyo and the North) and JN West (serving Osaka and the South). The Settlement Corporation retained one third of the shares of both JN East and JN West.

Fortune, August 19, 1996, "Japan's Endless Rescue Package," p.

Aug 9298.2Public works, housing loans
Apr 93121.1Public housing and infrastructure
Sept 9356.9Deregulation of the
corporate bond market
Feb 94140.4Direct spending (64%)
tax cuts (36%)
Apr 9544.1Issuance of general revenue bonds
Sept 95130.3Public works (Kobe earthquake
reconstruction) (90%)
Deregulation (10%)

Notes on: "Two Japans: The Gulf Between Corporate Winners and Losers is Growing," Business Week January 27, 1997, pp. 24-28.

The two Japans of the title are:

The Weight of the Yen: How Denial Imperils America's Future and Ruins an Alliance by R. Taggart Murphy (W.W. Norton, 1996)

Murphy makes an interesting contrast between the West Wing of the White House in Washington, D.C. and the Ministry of Finance (MOF) in Tokyo.

Murphy say that the MOF officials do not see themselves as all-powerful but consider themselves as an elite responsible for the fiscal integrity of Japan. This means that they have to protect this integrity from "rapacious politicians, a selfish ignorant electorate, and the pleaders of special interests at the other ministries." (p. 31) He says that the MOF treats the banks, brokers and insurances companies as their charges "who, if left to their own devices, would quickly destroy themselves and the country." (p. 31)

Yen!: Japan's New Financial Empire and its Threat to America, by Daniel Burstein 1990.

An example of what the Japanese themselves refer to as the "arrogance problem" and the Western refers to as hubris.

Sometime about 1989 Masaaki Kurokawa became head of Nomura Securities International, the New York-based subsidiary of Nomura Securities of Japan. Shortly afterward Kurokawa was entertaining American guests at an expensive restaurant on the fiftieth floor of a building owned by Nomura in Tokyo. He gave an after dinner speech. He opened with the statement that, "We Japanese will have to come up with much bolder ideas to play our role properly in the world." He then outlined a plan for Japan helping the United States solve its trade deficit problem. At that time the dollar was trading for 140 yen. Kurokawa called for a weakening of the dollar to 100 yen. At that exchange rate Japanese industry would find it difficult to compete with American industry. U.S. domestic industry would not be threatened by Japanese imports. Next, according to Kurokawa's plan a joint currency would be created. This would allow Japan to invest freely in the U.S. economy without worrying that unwise American fiscal policy would weaken the value of the dollar and decrease the yen-value of Japanese investments in the U.S. As to the question of what Japan would get in return for this help Kurokawa answered with one word: "California!"

California would be turned into a joint U.S.-Japan economic community shared by both countries. No visas would be required for Japanese citizens to come and go. Japan would export several million Japanese workers to California to take advantage of cheap California real estate.

"The Failed Miracle" by Edward W. Desmond Time April 22, 1996, pp. 60-64.

"Rarely has a country fallen so far so fast as Japan in the past five years. What went wrong?"

In 1991 Japan could look back on three decades of growth at an average rate of 6.5 percent. In the 1980's Japan dominated consumer electronics, semiconductors, automobiles and Japanese companies were buying up American properties at an alarming rate. But the past five years have been ones of economic gloom and the solution is elusive. Nissan's auto sales have fallen 22 percent and it has closed factories. Property values have fallen 50 percent and resulted in bad loan losses for Japanese banks of as much as $1 trillion. Homebuyers on around 1990 are burdened with properties that are worth half of what they paid for them.

Japanese companies are suffering and not investing, at least not in Japan. The new factories are going to Malaysia and Thailand. This is called kudoka, the hollowing out of the Japanese economy.

Only about 20 percent of Japanese workers, those working for the blue chip companies, have so-called lifetime employmemt. The other 80 percent are subject to layoffs. Even among the blue chip companies the downtown has affected the employment picture.

These companies are not filling vacanies and sometimes employees are pressured to leave voluntarily by humiliating pay cuts or rediculous job assignments. This is called kata tataki, the tap on the shoulder.

Unemployment is now up and new university graduates are facing what is called the "super ice-age of employment." The unemployment rate is expected to double. Japanese unemployment rates have been generally low, partly because of the way unemployment is defined in Japan.

The economic malaise is paralleled by a social deterioration in Japan involving higher crime rates and corruption of the government.

The Sewing Machine Industry

Japan had domestic producers of industrial sewing machines but the comsumer sewing machine market was was held by Singer sewing machines imported from the U.S. Conditions in post-war Japan were conducive to the creation of a domestic and export sewing machine industry:

Singer filed suit against some of the Japanese sewing machine companies for infringement of the Singer patent and the use of the Singer name (Seager), but also pursued the creation of a joint venture, the Pine Machine, with a subsidiary of Nippon Steel. The Japanese government did not give approval to the joint venture Pine Machine until the other domestic sewing machine companies were strong enough to withstand the competition.

It was difficult for the Japanese sewing machine manufacturers to break into the European markets because Europe applied the same sort of protective tariffs that Japan used to keep out competition. However Japan solicited the aid of European machine tool manufacturers because an expansion of sewing machine manufacture in Japan would increase the demand for European machine tools. The Japanese sewing machine companies got big orders from German sewing machine companies by showing them that Japan was manufacturing parts for their arch-rival Singer.

Sewing machine manufacture was just about the first major export industry developed by Japan after World War II.

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