Planning, Growth, and Competition in the Japanese Economy

Abstract

The most phenomenal feature of postwar Japan is its rapid economic growth, which in some years has been 10% or even 15%; in no year has it been less than 3%. From 1952 through 1958 real GNP grew at an average rate of 7%; between 1959 and 1961, the growth rate was nearly 13 %. And the Doubling the National Income Plan forecasts growth of nearly 8% in the decade 1960-1969. During extended periods before the war, GNP had increased at average annual rates of between 5% and 7%; the long-run (1878-1939) growth rate was 4.4%. If this long-run growth rate is projected from the peak prewar levels, it becomes clear that the real GNP is still below where it would have been today if the long-run growth trend had prevailed in the absence of a war. Thus the rapid postwar growth was from a very depressed base; real GNP in 1946 and 1947 was less than half the 1939 level. Not until 1952 did real GNP reach its prewar peak and not until 1955 did GNP per capita reach its prewar peak. Output per man year did not reach its prewar peak until 1956 (and not until 1959 in the industrial sector). Thus despite the apparent tremendous attention given in Japan to importing foreign technologies, a major part of the gains in output reflected larger inputs of labor and capital, rather than gains in productivity. That productivity gains were not larger raises the question of whether there is something in the way the Japanese economy is managed which suggests that productive inputs of labor and capital are not used in the most effective way. It also raises the question whether there is something in the way new investments are selected or undertaken which also might limit productivity gains. Current Business Conditions: The flexibility of the Japanese economy is shown in the sizeable variation in growth rate. 1962 was a year of recession or depression, although real income was 5.7% above its 1961 level; whereas 1961 showed a gain of 16.1% over 1960. The decline in the growth rate, a response to a much more restrictive credit policy adopted to cope with an exceedingly large international balance of payments deficit, was remarkably smooth-income and employment continued to rise, and industrial production fell slightly. The balance of payments improved sharply in response to the tightening of monetary conditions and in late 1962 a movement toward greater monetary ease started. Some time after