| Description |
During the last decade the Japanese economy has been in a prolonged recession. Many of the economy's problems stem from a speculative asset bubble from the late 1980's. Many more of Japan's problems center around structural issues, like low productivity growth and low private domestic demand. These structural problems have roots in the industrial policy implemented after the war. These policies, once used to promote successful industries with high growth potential, turned protectionist and anti-competitive once the high growth era ended in the early 1970's. In the first chapter, I discuss what inputs to supply and demand growth had the greatest effect on the growing economy from 1955 to 1973. I will also focus on Japanese industrial policy and how that benefitted the growth of per capita GDP. In the second chapter, I discuss what caused the high growth era to end, mainly a lowered rate of technological change. The rate of technological change is comprised of many factors. This chapter will focus on two factors that relate well with the Japanese economy: the allocation of capital and labor, and the distribution of output. Industry collusion and government protection kept efficiency-creating competition low which slowed productivity growth. As investment rates declined, instead of creating new incentives for private consumers to consume, demand was driven by trade surpluses and budget deficits.In the last chapter, I suggest that in order to raise productivity levels, the Japanese economy must deregulate to increase competition, and increase imports and foreign direct investment. To raise private domestic demand, the retail and distribution sectors must be reformed to give consumers incentive to increase spending, and the banking system and capital markets must be reformed to spur private investment. |
