The Japanese Economy Reconsidered Also by Makoto Itoh THE WORLD ECONOMIC CRISIS AND JAPANESE CAPITALISM POLITICAL ECONOMY FOR SOCIALISM POLITICAL ECONOMY OF MONEY AND FINANCE (with Costas Lapavitsas) THE BASIC THEORY OF CAPITALISM The Japanese Economy Reconsidered Makoto Itoh Professor of Economics Kokugakuin University Tokyo © Makoto Itoh 2000 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,Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency,90 Tottenham Court Road,London W1P 0LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright,Designs and Patents Act 1988. First published 2000 by PALGRAVE Houndmills,Basingstoke,Hampshire RG21 6XS and 175 Fifth Avenue,New York,N.Y.10010 Companies and representatives throughout the world PALGRAVEis the new global academic imprint of St.Martin’s Press LLC Scholarly and Reference Division and Palgrave Publishers Ltd (formerly Macmillan Press Ltd). ISBN 978-1-349-39823-2 ISBN 978-0-230-50324-3 (eBook) DOI 10.1057/9780230503243 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Itoh,Makoto,1936– The Japanese economy reconsidered / Makoto Itoh. p.cm. Includes bibliographical references and index. 1.Japan—Economic conditions—1945– I.Title. HC462.5 .I86 2000 330.952—dc21 00–041488 10 9 8 7 6 5 4 3 2 1 09 08 07 06 05 04 03 02 01 00 Contents ListofTablesandFigures viii Preface ix 1 TheLongDownturnintheJapaneseEconomy 1 HighEconomicGrowthanditsDeadlock 1 TheBasicFrameworkofHighEconomicGrowth 1 WasitaKeynesianoraFordistRegime? 3 TheDeadlockofHighEconomicGrowth 6 SeveralPhasesofContinuousInstability 8 AnInflationaryCrisis,1973–75 9 RecoveryThroughExportsandStateExpenditure,1976–79 11 ALongerDownswing,1979–83 12 RecoveryFollowingReaganomics,1983–85 13 DepressionDuetotheSoaringYen,1985–86 13 RecoveryInducedbyaBubble,1987–90 14 ComplexDepressioninthe1990s 16 StrengthsandWeaknessesoftheJapaneseEconomy 17 Strengths 17 Weaknesses 20 TowardZeroGrowthCapitalism? 23 ComplexDepressionDuetotheBurstoftheBubble 24 ATendencyTowardIndustrialHollowing-outand De-industrialization 25 DepressedConsumerDemandandExcessCapacity 27 FallingPopulation 28 v vi TheJapaneseEconomyReconsidered 2 InformationTechnologiesandCompetitive RestructuringofCapitalism 30 TheImpactoftheInformationRevolution 30 TechnologicalGrounds 30 ChangesinCapitalistFirms 32 ChangesattheWorkplaceandintheLabourMarket 34 TheRevitalizationoftheAtomisticMarketEconomy 37 DiversificationofModelsandProducts 37 TheRestructuringoftheRetailMarketSystem 38 AreConsumersinaStrongerPosition? 39 NeoliberalismandtheSpiralReversalofCapitalist Development 42 TheHistoricalTendencyofCapitalismUntiltheBeginning ofthe1970s 42 TheSpiralReversalofCapitalistDevelopment 44 TheSignificanceofandProblemsCreatedbyNeoliberalism 45 3 ChangesinIndustrialStructureandFamilyLife 49 IndustrialHollowing-out 51 ChangesinIndustrialStructureTowardaServiceEconomy 51 TheSoaringYenandChangesinIndustrialStructure 53 IndustrialHollowing-outPassingaWatershed 54 TheEconomyShiftsTowardtheTertiarySector 56 AnExpandingServiceSector 56 AGeneralTendencyTowardaServiceEconomy 56 TheInfluenceofMEInformationTechnology 58 TheImpactoftheSoaringYen 60 ChangesinFamilyLifeandChallengesofFeminism 61 TheM-CurveofJapaneseWomen’sLabourParticipation RateanditsChanges 61 ChangesinFamilyLife 65 HowShouldtheTendencyTowardLowerPopulationbe Analysed? 69 TheSignificanceofFallingPopulationandPossibleOptions 71 4 TheBurstoftheBubbleandthePoliticalEconomy ofthe1990sDepression 76 TheSwelloftheBubble 77 TheTriggeringRoleofMonetaryandFiscalPolicy 78 Contents vii EconomicRecoverywithExpandingDomesticDemand 80 TheRoleoftheFinancialSystem 83 TheBurstoftheBubbleandthePressureofDepression 87 TheProcessofBurstingtheBubble 87 ComplexLinkagesintheSpiralofDepression 90 FailureandConfusioninEconomicPolicy 94 TheFailureofNeoliberalism 94 PoliticalEconomyoftheFiscalCrisisoftheState 97 5 AsiaandJapanintheProcessofGlobalization 106 TheGlobalizationoftheCapitalistEconomy 106 WhatdoesGlobalizationMean? 106 ContemporaryFeatures 108 TheNewWorldOrderandGlobalization 111 TheGlobalizationofJapaneseCapitalism 115 TheAsianConnection 121 HighEconomicGrowthofAsianEconomiesintheVicinity ofJapan 121 GlobalizationandDiversificationofEconomicSystems 123 TheMeltdownoftheAsianEconomicMiracleandAfter 128 ConcludingRemarks 134 NotesandReferences 138 Bibliography 145 Index 149 List of Tables and Figures Tables 1.1 BasicIndicesoftheJapaneseEconomy(1973–98) 9 3.1 DistributionofEmployedWorkersbyIndustry(1930–97) 50 3.2 InternationalComparisonofDistributionofEmployed Workers(1968–95) 52 4.1 OutstandingGovernmentBondsandtheRateofTaxation (1973–99) 98 4.2 TheGovernment’sOutlookonEconomicGrowthand ActualResults(1991–98) 100 5.1 RegionalDistributionofOutstandingOverseasDirect InvestmentbyMajorCountries(1977–95) 118 Figures 1.1 CapacityUtilizationinJapaneseManufacturing(1973–95) 10 3.1 FemaleLabourParticipationRatesbyAgeGroup(1975–96) 63 3.2 InternationalComparisonofFemaleLabourParticipation Rates(1987–90) 64 4.1 Nikkei225SharesAveragePricebyHalfYear(1983–97) 77 4.2 IndicesofLandPrices(1983–96) 78 viii Preface In1973,higheconomicgrowthintheJapaneseeconomy,characteristic ofthelongboomfollowingWorldWarII,cametoanend.Theeconomy enteredadramaticlongdownturnlastingtothepresentday.Theannual averagegrowthratefellsharplyfrom9.2percentin1951–73to3.9per cent in 1974–90. Despite this downswing, until the end of the 1980s the Japanese economy was generally regarded as exceptionally stable, strong, and exempt from the worldwide crisis that emerged at the beginningofthe1970s.Itsgrowthratewasstillhigherthanthatofother advancedcountriesby1–2percent.Therateofunemploymentseemed muchlower.By1987,combinedwiththeeffectofcontinuousapprecia- tion of the yen, Japan’s GDP per capita surpassed that of the USA in international dollar-denominated comparison. Several Western scho- lars,suchasVogelinJapanasNumberOne(1979)andJohnsoninMITI and the Japanese Miracle (1982), presented Japanese success stories as appropriate lessons for other countries. The Japanese style of business andlabourmanagement,basedonJapanesesocialcultureandorches- trated by clever bureaucrats with a longer perspective on industrial policies,wasthoughttobethesecretofJapan’seconomicsuccess. Inthe1990s,theJapaneseeconomycontinuedtorecordlargetrade surpluses by maintaining its international competitive power on the basis of workers’ cooperation with management. Thus, Japan has accumulatedbyfarthelargestamountofforeignexchangereservesin theworld– US$220billionbytheendof1997– andthelargestforeign assets.Shehas,indeed,morethanachievedthelong-cherishednational target set at the Meiji Restoration in 1868 (the beginning of her modernization), namely tocatch up withWestern advanced countries andbecomeoneofthemajoreconomicpowers. ix