THE ECONOMIC DEVELOPMENT OF JAPAN

Transcription

1 THE ECONOMIC DEVELOPMENT OF JAPAN

2 STUDIES IN THE MODERN JAPANESE ECONOMY General Editors: MALCOLM F ALKUS, The London School of Economics and Political Science; and MASAO BABA, Kyoto University Advisers: Y ASUKICHI YASUBA, Osaka University; and KOJIRO NINO, Kobe University An understanding of the modern Japanese economy remains both important and elusive. Its importance needs little stressing. Since the 1950s Japan's economy has grown at a rate unparalleled elsewhere and, despite predictions that such success could not last, the economy remains strong, dynamic and sustains full employment. Yet an understanding of the many unique features of Japan's economic and social life is essential if we are to appreciate the Japanese achievement, but on the other hand this very uniqueness makes communication difficult. Straightforward translations of Japanese works frequently mean little to western readers because the underlying attitudes and assumptions are so unfamiliar. This new series has been planned in the belief that there is an urgent need for scholarly studies on the modern Japanese economy which are written by experts (both Japanese and western) and aimed at western readers. Accordingly, we have planned a series of books which will explore all the major areas of Japanese economic life. The books will present up-to-date material, and, where necessary, they will place Japan in its wider international context. Published Yutaka Kosai and Yoshitaro Ogino: THE contemporary JAPANESE ECONOMY Ryoshin Minami: THE ECONOMIC DEVELOPMENT OF JAPAN Series Standing Order If you would like to receive future titles in this series as they are published, you can make use of our standing order facility. To place a standing order please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address and the name of the series. Please state with which title you wish to begin your standing order. (If you live outside the UK we may not have the rights for your area, in which case we will forward your order to the publisher concerned.) Standing Order Service, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire, RG 21 2XS, England.

3 THE ECONOMIC DEVELOPMENT OF JAPAN A Quantitative Study Ryoshin Minami Professor of Economics, Institute of Economic Research, Hitotsubashi University, TOkyo Translated by Ralph Thompson and Ryoshin Minami with assistance from David Merriman M MACMILLAN PRESS

4 The Oriental Economist 1986 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright Act 1956 (as amended). Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 1986 Published by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world British Library Cataloguing in Publication Data Minami, Ryoshin The economic development of Japan: a quantitative study-{studies in the modem Japanese economy) I. Japan-Economic conditions-to Japan-Economic conditions Title II. Series HC462 ISBN ISBN (ebook) DOI / Publication has been sponsored by the Japan Foundation and the Suntory Foundation.

5 Contents List of Tables List of Figures Preface Bibliographical Sources Abbreviations xiii XX xxiii xxvi xxvi 1 Introduction PART I AN OVERVIEW OF ECONOMIC HISTORY 1.1 An Introduction to Japan 3 The Land and the People 3 The People and their Culture 4 Politics and Economics Modem Economic Growth 9 The Concept 9 The Transition Period 9 The Beginning of Modem Economic Growth 10 Summary of the Chapter Readiness for Modern Economic Growth 2.1 Political and Economic Organization, Human Resources and Social Overhead Capital Political and Economic Organization Human Resources Social Overhead Capital 2.2 Economic Development Agriculture v

6 VI 3 Contents Manufacturing Industry Commerce and Finance The Economy and Population before Modem Economic Growth 2.3 An Assessment of Japan's Readiness for Modem Economic Growth Relative Backwardness Summary of the Chapter An Analysis of the Growth Rate during Modern Economic Growth 3.1 Economic Growth Rate Levels An International Comparison The Relative Backwardness Hypothesis 3.2 Fluctuations in the Economic Growth Rate Business Cycles Long Swings Pre-war Wartime and Post-war 3.3 Economic Growth Trends Trend Acceleration in Japan Trend Acceleration in Other Countries Summary of the Chapter PART II MODERN ECONOMIC GROWTH: PRODUCTION AND DEMAND 4 Agriculture during Industrialization The Agricultural Growth Rate 63 An Analysis of the Growth Rate 63 Rapid Growth in the Early Period 65 Stagnation in the 1920s 66 Rapid Growth in the Post-war Period 70 A Comparison with Other Countries Choice of Technology and Technological Progress 71 Japan 71

7 Contents A Comparison with Other Countries 75 Crucial Factors in Choice of Technology Agricultural Growth and Early Industrialization 80 The Two Theories 80 The Facts 82 The United Kingdom 84 Growth Rates of Major Sectors 85 Agricultural Growth in Perspective Agriculture's Contribution to Industry 89 The Supply of Foodstuffs 89 Agriculture and Exports 93 Flow of Farmers' Savings to Industry 94 Transfer of Agricultural Surplus by the Government 97 Summary of the Chapter 98 vii 5 Industrialization A Survey of the Industrialization Process 101 The Industrial Growth Rate 101 An Analysis of the Growth Rate 104 The Contribution of 'Industry' to Economic Growth 108 Changes in the Industrial Structure 108 A Comparison with Other Countries 109 Factors Responsible for the Change in the Industrial Structure Railways and Electric Utilities 113 Social Overhead Capital 113 Railways' Early History 115 Capital-Output Ratio of Railways 121 The Contribution of Railways 121 Electric Utilities' Early History 122 Capital-Output Ratio of Electric Utilities 123 The Contribution of Electric Utilities 124 Mechanization of Smaller Factories 126 Electrification of Larger Factories The Development of Manufacturing 130 Early Industrialization 130 The Acceleration of Manufacturing Growth 135 The Maturity of Manufacturing 136

8 viii Contents 5.4 Technological Progress 138 Three Categories of Borrowed Technology 138 Examples of Borrowed Technology 139 Gerschenkron Model 141 Social Capability to Absorb Modem Technology 143 Technological Progress in the Post-war Period Industrial Organization and Industrial Policies 148 Industrial Organization in the Pre-war Period 148 Industrial Organization in the Post-war Period 151 General Trading Companies and Subcontracting 153 The Role of the Government in Pre-war Industrialization 154 Post-war Industrial Policies 155 Summary of the Chapter Capital Formation and Its Sources The Size, Composition and Determinants of Capital Formation 161 Changes in the Amount of Capital Formation 161 Composition of Capital Formation 165 Determinants of Capital Formation The Impact of Capital Formation on Demand 173 Effective Demand Effect 173 The Rate of Investment and Its Significance 180 Experiences in Other Countries The Impact of Capital Formation on Production 189 Production Effect 189 Capital-Output Ratio by Sector 189 Capital-Output Ratio by Non-primary Sector Sub-group 193 Capital-Output Ratio in Other Countries 195 Capital-Labour Ratio Composition of Capital Stock 199 The Financing of Investment 201 Imports of Foreign Capital 201 Savings Rates 203 Composition of Savings 208 Savings of Government and Private Corporations 208 Personal Savings Rate 210

9 Contents ix Personal Savings/Consumption Function 211 International Comparison of the Personal Savings Rate 215 Summary of the Chapter Foreign Trade Foreign Trade and the National Economy 218 The Growth Rate of Foreign Trade 218 The Relative Importance of Foreign Trade in the Japanese Economy 220 Effective Demand Effect of Exports 222 The Export-led Growth Hypothesis 223 Foreign Trade and the Balance of Payments 225 The Effects of Foreign Trade Foreign Trade and Industrialization 226 Export Structure 226 Comparisons with Other Countries 229 Import Structure 230 Comparisons with Other Countries 234 Wild-Geese in Flight Determinants of Foreign Trade 238 The Establishment of a Trading System 238 Terms of Trade 239 Determinants of Exports 242 Estimation of Export Function 244 Shinohara's Hypothesis on Exports and Economic Growth 246 Determinants of Imports 247 Foreign Trade Policies 250 Summary of the Chapter 253 PART Ill MODERN ECONOMIC GROWTH: CAUSES AND RESULTS 8 Population and Labour Supply Population 257 The Size of the Population and the Economy 257 The Population Growth Rate 259

10 X Contents Changes in Birth-rates and the Age Composition of the Population 261 Population Growth and the Economy 265 Age Composition and the Economy Labour Supply 266 The Increase in the Labour Force 266 The Labour Participation Rate 268 Summary of the Chapter Labour Market and Dual Structure Overall Industrial Structure of Employment 271 Historical Changes 271 Determinants of the Industrial Structure of Employment Labour Migration from the Primary to the Nonprimary Sector 283 Historical Developments 283 Outflow of Labour from the Primary Sector 286 Cyclical Fluctuations in Labour Migration 287 Changes in the Employment Structure Surplus Labour and the Turning-point 294 The Labour Force- Supply and Demand 294 Concept and Theory of Surplus Labour and the Turning-point 296 The Turning-point in Japan 298 The Turning-point in Other Countries 306 Surplus Labour and Economic Growth 307 Labour Shortage and Economic Growth Wages, Dual Structure and Relative Income Shares 308 Changes in Real Wages Over Time 308 Wage Differentials 310 Dual Structure of the Economy 314 Dual Structure of Manufacturing 315 Theories of Dual Structure 317 Japanese Employment Practices 320 Relative Income Shares in Non-primary Industries 321 Changes in Labour's Share Over Time 323 Income Shares in Agriculture 328 Experience of Other Developed Countries 328 Summary of the Chapter 329

11 Contents 10 Public Finances and the Financial System The Size and Structure of Public Finances 332 Size 332 Structure 338 The Composition of Government Revenue 339 The Composition of Government Expenditure Public Finances and the Economy 345 The Role of Public Finances Financial Organizations 347 The Development of the Financial System 347 The Circulation of Capital 350 Overborrowing and Overloan Money- Supply and Demand 355 Money Supply and Financial Policy 355 The Growth Rate of the Money Supply 359 Demand for Money - the Marshallian k 360 Summary of the Chapter 367 xi 11 Prices and Living Standards Changes in Prices, Causes 369 Growth Rate of General Prices 369 The Growth Rate of Specific Prices 373 Causes of Price Changes 375 The Nature of Post-war Inflation 380 Inflation and the Money Supply The Price Structure and Inflationary Growth 385 Relative Sectoral Prices 385 The Post-war Price Structure 389 Inflationary Growth 391 Government Measures to Control Inflation Living Standards 394 Increases in Incomes, Consumption 394 Changing Consumption Patterns 397 Income Distribution Living Standards: Changes in Stock, Qualitative Measurement 401 Increase in Stock 401 Livings Standards: A Qualitative Picture 403 Fruits of Modem Economic Growth 404 Summary of the Chapter 409

12 xii Contents PART IV SUMMARY AND CONCLUSIONS 12 Modern Economic Growth: Retrospect and Prospects A Retrospective View of Modem Economic Growth 415 Pre-war Economic Growth 415 Post-war Economic Growth 419 The Consequences of Economic Growth 421 A Comparison with Other Developed Countries 421 A Comparison with Developing countries Future Prospects of Economic Growth 425 Natural Resources and Technological Innovation 425 Population and Labour Supply 426 International Economic Environment 428 Transition to a Welfare Economy 428 APPENDICES 430 A Chronology of Japanese History 430 B Map of Japan 433 Notes and References 435 Bibliography 460 Index of Personal Names 478 Index of Subjects 480

13 List of Tables 1.1 Per capita GNP in the developed countries at their modem economic growth starting-points, and in 1965, Percentage of students enrolled in compulsory education in Japan Number of students and their ratio to the total population for three countries Changes in travel time and expenses resulting from the opening of railways in Japan Changes in time and charges for transporting habutae silk from Fukui to Tokyo with the opening of railways Textile products' share of total manufacturing production and total commodity exports in Japan Per capita GNP and agriculture's share oftotallabour force in the developed countries Economic growth rate, population growth, and growth of per capita GNP during the modem economic growth phase in the developed countries Economic growth rate G( Y), population growth G(N), and growth of per capita GNE, G( Y/ N) in Japan Long swings in Japan 3.4 Economic growth rate of eight developed countries A breakdown of the primary industry growth rate in Japan Growth rates of factor inputs, factor ratios and productivity in primary industry in Japan Growth rates of rice production in Japan and her colonies Rice- supply and demand in Japan xiii

14 xiv List of Tables 4.5 Growth rates of agricultural production, factors of production and productivity in six developed countries Rice yield, amount of fertilizer used, and relative prices of fertilizers to agricultural products in Japan Regressions of factor ratios on relative factor prices in agriculture in Japan Agricultural growth rate in Japan A comparison of growth in the agricultural and nonagricultural sectors in Japan Economic and agricultural growth rates in Great Britain Economic and agricultural growth rates in France Relative prices of agricultural and industrial products, Japan , UK Indicators of the development of sericulture in Japan Flow of savings from the agricultural sector to the nonagricultural sector in Japan Percentage of real GOP growth accounted for by various industry groups in Japan Growth rate of the manufacturing production index in the developed countries A breakdown of the non-primary industry growth rate in Japan A breakdown of the growth rate oflabour productivity for manufacturing in the USA Relative contributions to economic growth by industry group in Japan Industry groups' share of GOP in Japan ll7 5.7 Social overhead capital's value and growth rate in Japan Indicators of the development of railways in Japan Capital formation by railways and electric utilities as a proportion of non-primary capital formation in Japan Indicators of the development of electric utilities in Japan 1~3-40 1~ 5.11 Powered factories as a proportion of all factories in Japan

15 List of Tables 5.12 Composition of total power capacity of manufacturing industry by type of engine in Japan Growth rate of real manufacturing output by sub-industry group in Japan Sub-industry groups' relative contributions to manufacturing growth in Japan Sub-industry groups' shares of manufacturing output in Japan Indicators of the development of the textile industry in Japan Different manufacturing industries' shares of GNP in Great Britain Growth rates of heavy and chemical industries in Japan Growth rate of labour productivity, ratio of payments for imported technology and ratio of R & o expenditure to output in the manufacturing industry in Japan Growth rates of the components of real GNE in Japan Correlation between the growth rate of real GNE and its components in Japan Composition of fixed capital formation in Japan Investment functions of private non-primary industries in Japan Composition of GNE in Japan International comparison of the composition of GDE Relative contributions to economic growth of the components of effective demand in Japan The investment rate and the marginal output-capital ratio in the developed countries Correlation between the economic growth rate G( Y), and the investment rate (IX), and between G( Y) and the marginal output-capital ratio (/J) in nine developed countries Correlation between the economic growth rate G(Y) and the investment rate (IX), and between G(Y) and the marginal output-capital ratio (/J) in 27 countries Capital-output ratio, capital-labour ratio, and labour productivity in Japan Capital-output ratio, capital-labour ratio, and labour productivity for major industry groups in Japan xv

16 xvi List of Tables 6.13 Capital-output ratio of sub-sectors of the manufacturing industry in Japan Capital-output ratio, capital-labour ratio, and labour productivity in sub-sectors of the manufacturing industry in Japan Capital-output ratios in nine countries Growth rates of output, labour force and capital stock in five developed countries Composition of gross capital stock in Japan Ratio of net capital imports to gross capital formation in eight developed countries Savings rates and the composition of savings in Japan Savings rates and the composition of savings in seven developed countries International comparison of savings rates and the composition of savings Government savings and investment in Japan Flow of funds from different sectors in Japan and the USA Growth rates of personal disposable income per capita, consumption expenditure per capita and savings per capita in Japan Personal consumption functions in Japan Growth of world trade and world manufacturing Ratio of foreign trade to GNE in Japan Ratio of foreign trade to GNP in nine developed countries Functions of proportion of foreign trade for fifty-five countries Ratio of balance of payments to GNE in Japan Composition of commodity exports in Japan Composition of commodity exports and imports in six developed countries Composition of commodity imports in Japan Composition of manufactured imports in Japan Terms of trade in seven developed countries Export and import functions

17 List of Tables 8.1 Vital statistics and population density of different regions of the world Labour-land ratio and labour productivity of agriculture in six developed countries Total population and age composition in Japan Age composition of the population in different regions of the world Population aged 15 years or over, labour force and labour participation rate in Japan Male and female labour participation rates by age group in Japan International comparison of labour participation rates Growth rate oflabour force, relative contribution of major industry groups to growth oflabour force and composition of labour force in Japan Relative labour productivity of major industry groups in Japan Relative labour productivity of major industry groups in six developed countries Indices of employment in primary industry in nine developing countries Causes of changes in labour force in primary industry in Japan Composition of workers in employment in Japan Composition of workers in employment in different sectors International comparison of composition of workers in employment Labour productivity and wages in primary industry in Japan Growth rate of real wages in agriculture and manufacturing in Japan Growth rate of real wages in non-primary industry and industry as a whole in Japan Growth rate of real wages in five western countries Manufacturing industry wage differentials by size of establishment in Japan xvii

18 xviii List of Tables 9.14 Manufacturing industry wage differentials, labour productivity, capital-labour ratio and relative income share of labour by size of establishment in Japan Manufacturing industry wage differentials, labour productivity, capital-labour ratio, and relative income share of labour by size of estabiishment in Japan A breakdown of workers in employment in manufacturing by size of establishment in Japan A breakdown of workers in employment in manufacturing by size of establishment in four developed countries Income share of labour for incorporated and unincorporated sectors of non-primary industry Income share oflabour in six western countries I 0.1 Indicators of the size of public finances in Japan Composition of public finances in Japan I 0.3 Composition of public finances in the UK and Australia I 0.4 Ratio of public expenditure to GNP, and of taxation to national income in six developed countries I 0.5 Composition of public finances in ten countries Composition of government revenue in Japan Composition of tax revenue in Japan Composition of government expenditure in Japan I 0.9 Ratio of government current expenditure to GNP in seven western countries Subsidies to different industry groups in Japan Indicators of development of banks in Japan Composition of corporate capital in Japan Composition of corporate capital in three western countries Supply of funds for industry in Japan Supply of funds for industry in four western countries Composition of increases in the money supply in Japan I 0.17 The growth rate of the money supply and the Marshallian k I 0.18 Growth rate of the money supply in the developed countries

19 List of Tables xix The Marshallian kin Japan and the USA Functions of the Marshallian k The Marshallian kin the developed countries Growth rates of various price indexes in Japan International comparison of the growth rates of GOP deflators Relative prices in Japan Price adjustment functions Wage adjustment functions Correlation between growth rate of GNE deflator and growth rate of money supply in Japan Correlation between industry groups' relative prices and their determinants The ratio of consumer prices to wholesale prices in the developed countries Growth rates of real personal disposable income per capita and real personal consumption expenditure per capita in four developed countries Living standards in seven developed countries Composition of consumption expenditure in Japan Gini coefficient for Japan Residential capital stock per capita in Japan Ratio of real GOP to land area and of energy consumption to land area and to real GOP in Japan Ratio of GNP to land area and of energy consumption to land area and to GNP in seven developed countries Real social security expenses per capita and the ratio of social security expenses to national income in Japan

20 List of Figures 1.1 Horsepower capacity of steam engines in the manufacturing industry in Japan Relationships between economic growth rates during the modem economic growth phase and per capita GNP in Relationships between economic growth rates during the modem economic growth phase and per capita GNP at its starting points Economic growth rate, population growth and growth of per capita GNE in Japan Economic growth rate for Great Britain in the eighteenth and nineteenth centuries Relationships between the productivity of agricultural labour and land in six developed countries Relationships between productivity of agricultural labour and land Relationships between the land-labour ratio and the land price - agricultural wage rate ratio in six developed countries Major industry groups' shares of GDP in the developed countries Relationships between growth rates of the primary sector's share of GDP for and its share in Relationships between major industry group's shares of GDP and per capita GDP Types of borrowed technology Growth rates of technology borrowing and real R & n expenditure, and 'residual' of the growth rate in the mining and manufacturing industries in Japan Growth rates of real capital formation G( CF) and real exports G(E) in Japan Growth rates of real capital formation of the private sector G(PCF) and the government sector G(GCF), G(GCF') in Japan XX

21 List of Figures 6.3 The investment rate (ex) and the marginal output-capital ratio (fj) in Japan Relationship between the economic growth rate G( Y) and the investment rate (ex), and between G( Y) and the marginal output-capital ratio (p) in eight developed countries Relationships between the economic growth rates G(Y), and the investment rate (ex), and between G(Y) and the marginal output-capital ratios (fj) Personal savings rate (y) and growth rates of personal disposable income per capita G(P YIN), personal consumption expenditures per capita G(PCfN) in Japan Relationship between Japan's heavy and chemical industry's share of foreign trade and its share of output Relationship between intermediate products' share of manufactured imports and the import ratio of manufactured products for Japan Wild-geese flying pattern of economic development Import and export ratios of manufactured products Terms of trade, ratios of Japan's export prices to world prices, and import prices to domestic prices Exchange rate of yen to dollar Customs duties in Japan Population growth rate in Japan Model of theory of demographic transition Major industry groups' shares of workers in employment in the developed countries Relationships between major industry groups' shares of workers in employment and per capita GDP Relationships between relative labour productivity of major industry groups and per capita GDP Employment in primary industry in the developed countries Rate of net outflow of primary labour force in Japan Cyclical fluctuations in rate of net outflow of primary labour force and economic growth rate in Japan Relationships between proportions of employees in employment and per capita GDP xxi

22 xxii List of Figures 9.8 Rate of unemployment and the ratio of applications for jobs to openings Model of theory of turning-point Real wages in agricultural and manufacturing industries in Japan Real wages in non-primary industry and industry as a whole in Japan Wage differential between agriculture and incorporated sector of 'industry' in Japan Wage differentials in manufacturing industries in Tokyo by size of establishment Wage differentials in manufacturing industries in Japan by size of establishment Income share oflabour in non-primary industries in Japan Mechanism which determines income share of labour Cyclical fluctuations in income share of labour in nonprimary industries and economic growth rate in Japan Relative income share oflabour in the USA, the UK and Canada I 0.1 Real GNE and real public expenditure in Japan Interest rates in Japan Growth rate of the money supply (M), the Marshallian k (k), and nominal GNE (Y) in Japan The Marshallian k (k) in Japan Growth rates of price indices in Japan Growth rate of GNE deflator and its determinants in Japan Growth rate of GNE deflator and its determinants in Japan Relationship between growth rate of wages and the ratio of applications for jobs to openings in Japan ll.5 Relative prices and unit labour costs of major industry groups in Japan Various price indices in Japan Relative prices of different-sized manufacturing enterprises and their determinants in Japan Relationships between social security expenses per capita and per capita GDP, and between ratio of social security expenses to GDP and per capita GDP

23 Preface The Japanese economy has never before attracted as much attention as it does today. In countries that have felt the full force of Japan's export drive, and whose own industries are in decline, there is a growing interest in discovering the secret of Japanese industry's sustained growth. Japanese management techniques, labour-management relations and the qualities of the labour force are all attracting interest. Developing countries, as well as placing great hopes on financial assistance and the introduction of technology from Japan, are attempting to learn from the economic development of what is the only developed country outside the west. Meanwhile in Japan the period of rapid economic growth has come to an end, and the economy is struggling to find its way along a new path. It is generally accepted here that problems such as the supply of raw materials, pollution, how to improve social welfare, an ageing population and friction with other countries will have to be tackled when formulating future economic policy. We believe that it is therefore of great value to analyze the last hundred years of economic development and use our evaluation of these years in plotting the future course. Hence this book consists of three main themes: l. Why was Japan able to 'take otr successfully-to achieve modem economic growth initially? The view that the decisive factor was the Meiji government's forthright economic policies has often been put forward. Recent empirical research has, however, emphasized the economic and cultural inheritance from the Tokugawa Period. Yet, had it not been for the introduction of modem technology, which had its beginnings in the late Tokugawa Period but was not significant until the Meiji Period, industrialization might never have got off the ground. We suggest in Chapter 2 that the Tokugawa inheritance and Meiji modernization deserve equal consideration. 2. Why was Japan able to achieve a more rapid rate of economic growth than other developed countries? The answers to this question xxiii

24 xxiv Preface constitute the major part of the book. In this section we particularly emphasize two points. First, while economic growth was indeed rapid, it was by no means constant. There were a series of long swings in the growth rate, and overall it was showing a tendency to accelerate. Second, major structural changes accompanied economic growth. Manufacturing industry's and services' shares of output rose, at the expense of agriculture's share. Consumption expenditure's share of GNP declined and capital formation's share increased significantly. Since the Second World War the surplus on the labour market has changed to a shortage. We discuss the economic growth rate in Chapter 3, the structural changes in Chapters 4 to What is the probable future of the economy? To answer this, first it is necessary to evaluate correctly the results of the last hundred years of economic growth. We do this, using the results of analyses from earlier in the book, and then attempt to say something about the future. We believe that this book differs from several books already published in English on the Japanese economy in that it contains: 1. Long-term analysis, beginning with premodern economic growth and covering the long process of industrialization from its very beginnings. 2. Detailed structural analysis. It covers not only the overall growth of the economy, but also the structural changes that accompanied it. It is for this reason that we have used the word development, rather than growth, in the title. 3. Quantitative analysis. It does not simply enumerate a series of historical facts. We have used abundant statistical sources and have discussed the theory behind modem economic growth. The Long-Term Economic Statistics compiled at the Hitotsubashi University Institute of Economic Research have been particularly valuable. 4. An overall analysis. We have given, we believe, a balanced picture of all the major controversies and important aspects of Japan's economic development. We have tried to include as wide a range of opinion as possible, and have introduced the views of some economists who have been perhaps unjustly ignored in the past. 5. Comparisons with other countries, in an attempt to illuminate the similarities and differences between them and Japan. Some previous studies have not done this to a sufficient extent, and have tended to exaggerate Japan's uniqueness. 6. A mention of all the important research which has been done, and an evaluation of what has been achieved and problems that have still to be solved.

25 Preface XXV This is the English version of a book of the same title in Japanese published in 1981 by Toyokeizai Shinposha (Tokyo). The content is the same except for the following changes: 1. At the beginning of Chapter 1 a new section entitled An Introduction to Japan has been inserted for those whose present knowledge of Japan is limited (Section 1.1). 2. Some of the comments from the reviews of the Japanese version have been included, and a new section, Industrial Organization and Industrial Policies, has been added to Chapter 5 (Section 5.5). 3. Tables, figures and the text have all been updated. 4. We have tried to quote mainly English language sources, and the further reading after each chapter contains only English language works. This means that many sources published in Japanese could not be included, and those who read Japanese are asked to refer to the bibliography of that version. Readers are advised to read Chapter 12 first, as this will help them grasp the overall structure of the book and further their understanding. Similarly it is suggested that they read the summary at the end of each chapter, before beginning the chapter itself. The author has great pleasure in seeing his book on the Japanese economy printed in English, but without the kind assistance of many people this might never have been realized. He would like to express gratitude to Professors Kazushi Ohkawa, Miyohei Shinohara, Mataji Umemura, Hugh Patrick, Saburo Yamada and Kozo Yamamura for their encouragement and support. Thanks are due to Professor M. E. Falkus for his invaluable comments and to Professor Masao Baba for including this book in the present series- Studies in the Modern Japanese Economy. The author is particularly indebted to Mr Ralph Thompson and Mr David Merriman for their devoted efforts at translation and to the Japan Foundation and the Suntory Foundation for their financial aid. Finally he would like to express gratitude to Mr Yoshimaru Tadokoro of the Macmillan Shuppansha for his support in facilitating the translation and to Toyokeizai Shinposha for their permission to have the book translated. I hope that this, as well as the Korean, Chinese and Thai versions, will be read widely and help people in other countries to have a better understanding of Japan. Institute of Economic Research Hitotsubashi University TOkyo RYOSHIN MINAMI

26 xxvi Preface BIBLIOGRAPHICAL SOURCES Periodically published volumes of statistics (mainly by government organs) are abbreviated in the text, where the relevant years are also stated. Their full titles, and publishers, are shown in Part A of the Bibliography. For other sources, the author's name and the year of publication appear in the text; the full titles and publishers are found in Part B of the Bibliography. After each chapter the most important bibliographical sources are listed. They are marked with an asterisk in Part B of the Bibliography. ABBREVIATIONS r = correlation coefficient r = correlation coefficient adjusted by the degrees of freedom R = multiple correlation coefficient R = multiple correlation coefficient adjusted by the degrees of freedom F= F-value d = Durbin-Watson statistic G( ) = the growth rate of the symbol in parentheses t-statistics appear in parentheses below estimated coefficients