Japan's Response to Crisis and Change in the World Economy

Japan's Response to Crisis and Change in the World Economy

Japan's Response to Crisis and Change in the World Economy

Japan's Response to Crisis and Change in the World Economy

Excerpt

Michèle Schmiegelow

Japan's economy invites new analysis because, under conditions of global change that are perceived as crisis in all industrialized countries, it is cited as a success. It is also at considerable variance with precisely those recent trends in economic theory which in the West have been widely regarded as offering both explanations and solutions for the crisis. Conversely, some of Japan's domestic economic policies are having such an impact on the world economy that they are about to be imitated or emulated elsewhere.

Not that the Japanese case lacked salience in the 1960s and 1970s; it was, after all, striking enough to inspire Herman Kahn's early futurological vision of a Japanese superstate. Before the 1970s, however, there were always concepts that, though developed from Western experience, seemed to apply to Japan as well. Thus the outstanding growth rates of the Japanese economy in the 1960s could be analyzed in terms of long- term growth cycles in the process of "catching up" with the West. The government's short-term fiscal and monetary policies also presented familiar patterns: as in Germany, the balanced- budget rule prescribed by Joseph Dodge for both occupied countries in 1949 continued to be followed until the late 1960s. Less in line with American prescriptions was the fact that the high level of private investment required for the growth rates Japan achieved was supported by a basically illiquid system of indirect financing backed by off-budget fiscal policy, ample but rationed central bank credit, and interest-rate administration. Japanese policy makers, however, always rationalized these unorthodox conditions as a necessity resulting from the backwardness of the Japanese capital market. Indeed, they could have referred to the theory of backwardness, which Alexander Gerschenkron had developed from the economic history of continental Europe. The more backward an economy, it states, the more active the role of banks and, beyond that, of the government in the initial kick and subsequent spurt for economic development.

On the other hand, as was fitting for a "small open economy" in a neoclassical world, balance-of-payment constraints determined a restrictive discount policy as long as current-balance deficits . . .

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