M. Fujioka *
An economic plan to double the national income in ten years was adopted by the Japanese Government in December 1960.1 The purpose of the plan is to maintain the high rate of economic growth realized in the past decade, in order to raise further the living standards of the people and to attain full employment. In the first year of the plan (the fiscal year beginning April 1, 1961), the growth in gross national product (GNP) is estimated to have reached 10 per cent,2 compared with the average annual rate of 7.2 per cent envisaged for the plan period. The investment-induced boom resulted in a marked deterioration in the balance of payments; also, the vigorous economic activity entailed various frictions and problems, some of which were only vaguely anticipated in the plan, if not neglected.
The plan is briefly outlined in Section I below, and some background on its drafting is given. The basic factors of Japan’s economic growth in the past and the prospects for the future are discussed in Section II. Active private investment in such industries as iron and steel, non-ferrous metals, machines, chemicals, and coal and petroleum products has played an important role in the rapid economic expansion of recent years. It has increased the output capacity of the nation and raised the productivity of industry. However, the rapid economic expansion has given rise to various problems, of which the most conspicuous are the change in the price and cost structure and the balance of payments, the former conditioning and the latter limiting economic growth in future.
The change in the price and cost structure, which has been characterized by a downward trend of wholesale prices and an upward trend of consumer prices, is discussed in Section III. The downward trend of wholesale prices reflects rising output capacity and productivity, which is deflationary through its effect on demand, and the upward trend of consumer prices reflects rising wages, which may produce a cost inflation. A faster rise in wages than in prices is important to achieve a doubling of income in real terms at home, but a slower rise in wages than in productivity is necessary to maintain external competitiveness.
The prospects for exports and imports are discussed in Section IV. As GNP grows, imports are expected to increase more than proportionately; therefore, an expansion of exports is of vital importance to the plan. The improvement in Japan’s payments position heretofore owes much to the strengthening of the export industries, in spite of discrimination against Japanese goods by a number of other industrial countries. In view of the growing world market, elimination of discrimination against Japan by these countries will, together with assistance to less developed countries, become more important and will raise the limit imposed by the balance of payments on Japan’s economic growth.
There is little doubt about the potentiality of the Japanese economy to achieve the target of the income-doubling plan, provided that world trade grows sufficiently, say at an annual rate of 4–5 per cent; but the over-all success of the plan depends, to a large extent, on the domestic policies adopted to implement it. Since the plan is fundamentally of the nature of a guide for the national economy, based on the principles of free enterprise and free markets, much is left to the initiative and ingenuity of private enterprise. However, a market economy has inherent difficulties, particularly in Japan where competition is excessive and the operation of the market mechanism is too often accompanied by a great social sacrifice. How to harmonize the basic principle of a free economy with the modern concept of social welfare remains an important problem. This problem is discussed in Section V.
Mr. Fujioka, economist in the Far Eastern Division, is a graduate of the Law School of Tokyo University and studied at the University of Chicago. He was formerly a member of the staff of the Japanese Ministry of Finance.
Japanese Government, Economic Planning Agency, New Long-Range Economic Plan of Japan (1961–1970): Doubling National Income Plan (published in English by the Japan Times, Ltd., Tokyo, 1961).
Official estimate made in January 1962. However, a preliminary estimate made by the Economic Planning Agency in August 1962 shows a 13 per cent growth in GNP in real terms.
Gerhard Colm, The American Economy in 1960 (National Planning Association, Washington, 1952).
Based on data in International Monetary Fund, International Financial Statistics.
The dual structure of the Japanese economy is usually understood to mean the coexistence of advanced nonprimary industry and backward primary industry, of modernized big enterprises and premodern small enterprises, and of marked differentials in wages and living standards in various sectors of the economy.
This paper aims at analyzing the salient features of the Japanese economic growth in recent years, insofar as it conditions the future course of the income-doubling plan. It is not intended to explain comprehensively all the basic factors influencing economic growth in Japan.
Japanese Government, Economic Planning Agency, Economic Survey of Japan (1960–61) (published in English by the Japan Times, Ltd., Tokyo, July 1961), p. 22.
The remaining 59 per cent comprises 24 per cent derived from increases in household expenditures, 9 per cent from inventory investment, 12 per cent from government expenditures, and 14 per cent from exports and others. Ibid., p. 201.
The stage of heavy and chemical industrialization here referred to is one where the net value added in the heavy and chemical industries in peacetime exceeds some 50 per cent of that in manufacturing industry as a whole. This ratio exceeded 50 per cent in Japan in 1956 and rose to nearly 60 per cent in 1959 and 63 per cent in 1960. See Japanese Government, Ministry of International Trade and Industry, White Paper on Foreign Trade, 1961 (in Japanese), pp. 189, 218, and 307.
Calculated from gross investment in the same year as the increase in GNP, on actual value. Economic Survey of Japan (cited in footnote 7), p. 206.
See also Japanese Government, Ministry of International Trade and Industry, Monthly Statistics (in Japanese), March 1962, pp. 56–57.
For a discussion of the dual role of fixed investment in influencing the growth of output and of the usefulness of segregating producers’ investments in fixed assets from those investments whose impact upon capacity is more indirect, see United Nations, World Economic Survey, 1959, pp. 22–23.
It has been argued by Dr. Shimomura that private investment in equipment in a certain year is roughly equivalent to the increase in output capacity in the following year. His argument has two steps. First, on the basis of the time needed at present for the completion of construction works of various types, and of the present custom that payments are made in installments from the time of starting work to its completion, he assumes that private equipment investment in a given year (which comprises payments for various stages of different construction works) is approximately equal to the total value of equipment completed in the following year. Second, he gives statistical evidence that the total value of newly completed equipment in a certain year is approximately equal to the increase in output capacity in the same year. See 0. Shimomura, For the Realization of Economic Growth (in Japanese), Tokyo, December 1958, pp. 384–88.
This portion should be understood as the replacement that is necessary to maintain the existing level of output capacity in a physical sense, which is obviously different from depreciation for accounting purposes. Statistics of replacement so defined are not available. The ratio of depreciation fluctuated widely in the past, but the general trend was rising. It was 7–9 per cent during fiscal 1952/53–1955/56 for all industries (10–12 per cent for manufacturing alone), 8.5–10 per cent (12–13 per cent for manufacturing) during fiscal 1956/57–1958/59, 9–10 per cent (13–14 per cent) during fiscal 1959/60–1960/61, and 11–25 per cent (15–22 per cent) for the first half of fiscal 1961/62. The percentages for replacement cited in the text take into account the rising trend of depreciation and the increasing weight of manufacturing industry, especially the heavy and chemical industries, in the coming ten years, but the actual magnitude of the percentages does not mean much, because the present purpose is to show the year-to-year change in the marginal relation between supply and demand.
An index of output capacity for manufacturing industry, compiled by the Japanese Ministry of International Trade and Industry, in 1960 was 1.91 times the 1955 index; GNP in 1960 was 1.78 times that in 1955. The parallelism of this increase in output capacity and in GNP may mean that the capital coefficient is much lower than those usually considered, for which the reason appears to be that only net private equipment investment is taken into account in the calculation. This is appropriate because, although public investments, such as roads and housing, are important on both the demand and supply sides, they are not directly productive by themselves, and their relation to output can be flexible. What determines the growth in output capacity directly is private equipment investment, and its magnitude has a direct bearing on the supply and demand situation. Inclusion of public investment will merely raise the capital coefficient, with a wide margin of fluctuation, and obscure the present point of discussion.
In the short run, fluctuations in demand may result in increases and decreases in the rate of operation of plant, rather than in prices.
EPA survey in August 1961.
EPA survey in February 1962.
The plan expresses concern that the rising trend of saving might bring about a shortage in private consumption expenditure and imbalance between demand and supply.
Excess of government revenue (mostly taxes, but including surplus of government enterprises and other income) over government expenditure (purchase of goods and services, transfer payments, subsidies, and net payments abroad).
Average for fiscal 1959/60 and 1960/61.
The multiplier to be applied here is the reciprocal of the sum of the marginal rate of saving, marginal rate of taxation, and marginal rate of import. The marginal rate of saving and the marginal rate of taxation were 058 and 025 on the average, respectively, for fiscal 1957/58–1960/61, the most recent business cycle. The marginal rate of import was 0.15 on average for the two recent years when import restrictions were being gradually reduced. When these rates are used, the multiplier is 1.47.
The following condition is needed to maintain balance of payments equilibrium: increase in government expenditure (ΔG) + increase in industrial investment
According to a Bank of Japan survey (Monthly Economic Review, July 1961), the average fluctuation of wholesale prices in the period 1953–60, calculated
According to an EPA survey, the purchasing power parity of the yen for consumer goods and services (mainly labor-intensive goods) is ¥ 204 per US$1, whereas the official rate of exchange is ¥ 360 per US$1.
Economic Survey of Japan (cited in footnote 7), p. 444.
According to a Bank of Japan survey of 512 major enterprises, the added value of manufacturing industry (0) increased by more than 100 per cent during fiscal 1956/57-1960/61, the number of workers (N) by 26 per cent, and labor productivity (O/N) rose by 64 per cent. Putting O/N = O/K × K/N, where K denotes book value of tangible fixed assets, excluding those not yet productive, it is found that O/K decreased by 2 per cent and K/N increased by 68 per cent. From this it is clear that the rise in labor productivity is principally the result of labor-saving production methods via heavier capital investment per unit of labor.
According to an input-output analysis of the Japanese Ministry of International Trade and Industry (MITI), the average propensity to import in 1960, expressed as a percentage of the value of demand, was 7.6 per cent for household consumption, 4.4 per cent for government consumption, 12.6 per cent for inventory increases, 115 per cent for private investment in equipment, 9.9 per cent for government investment, 14.1 per cent for exports, and 9.2 per cent for total demand. The percentages are related conceptually to the sum of GNP and imports at current prices. See MITI, White Paper on Foreign Trade, 1961 (in Japanese), p. 184.
Between 1953 and 1960 export prices declined by 6 per cent while import prices declined by 18 per cent; thus the terms of trade improved by 14.6 per cent.
White Paper on Foreign Trade, 1961 (cited in footnote 27), p. 187.
Based on United Nations, Monthly Bulletin of Statistics.
For 1959 it is estimated at 57 per cent for the United States, 61 per cent for the United Kingdom, 53 per cent for Germany, and 58 per cent for France, according to a MITI survey. See White Paper on Foreign Trade, 1961 (cited in footnote 27), p. 218.
Estimated at 81 per cent for the United States, 78 per cent for the United Kingdom, 83 per cent for Germany, and 71 per cent for France, according to a MITI survey, loc cit.