Domestic investment in industry and infrastructure was the driving force behind growth in Japanese output.
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Both private and public sectors invested in infrastructure, national and local governments serving as coordinating agents for infrastructure build-up. On the supply side, total factor productivity growth was extremely important. Scale economies — the reduction in per unit costs due to increased levels of output — contributed to total factor productivity growth. Scale economies existed due to geographic concentration, to growth of the national economy, and to growth in the output of individual companies. The social capacity for importing and adapting foreign technology improved and this contributed to total factor productivity growth:.
Shifting out of low-productivity agriculture into high productivity manufacturing, mining, and construction contributed to total factor productivity growth.
Sharply segmented labor and capital markets emerged in Japan after the s. The capital intensive sector enjoying high ratios of capital to labor paid relatively high wages, and the labor intensive sector paid relatively low wages. Dualism contributed to income inequality and therefore to domestic social unrest.
After a series of public policy reforms addressed inequality and erased much of the social bitterness around dualism that ravaged Japan prior to World War II. The remainder of this article will expand on a number of the themes mentioned above. The appendix reviews quantitative evidence concerning these points. The conclusion of the article lists references that provide a wealth of detailed evidence supporting the points above, which this article can only begin to explore.
These developments were inseparable from the political economy of Japan. The system of confederation government introduced at the end of the fifteenth century placed certain powers in the hands of feudal warlords, daimyo , and certain powers in the hands of the shogun , the most powerful of the warlords. Each daimyo — and the shogun — was assigned a geographic region, a domain, being given taxation authority over the peasants residing in the villages of the domain. Intercourse with foreign powers was monopolized by the shogun , thereby preventing daimyo from cementing alliances with other countries in an effort to overthrow the central government.
The samurai military retainers of the daimyo were forced to abandon rice farming and reside in the castle town headquarters of their daimyo overlord. In exchange, samurai received rice stipends from the rice taxes collected from the villages of their domain.
By removing samurai from the countryside — by demilitarizing rural areas — conflicts over local water rights were largely made a thing of the past. As a result irrigation ditches were extended throughout the valleys, and riverbanks were shored up with stone embankments, facilitating transport and preventing flooding.
The sustained growth of proto-industrialization in urban Japan, and its widespread diffusion to villages after was also inseparable from the productivity growth in paddy rice production and the growing of industrial crops like tea, fruit, mulberry plant growing that sustained the raising of silk cocoons and cotton. As a result of these domestic advances, Japan was well positioned to take up the Western challenge. It harnessed its infrastructure, its high level of literacy, and its proto-industrial distribution networks to the task of emulating Western organizational forms and Western techniques in energy production, first and foremost enlisting inorganic energy sources like coal and the other fossil fuels to generate steam power.
Having intensively developed the organic economy depending upon natural energy flows like wind, water and fire, Japanese were quite prepared to master inorganic production after the Black Ships of the Americans forced Japan to jettison its long-standing autarky. It created infrastructure that facilitated industrialization. It built a modern navy and army that could keep the Western powers at bay and establish a protective buffer zone in North East Asia that eventually formed the basis for a burgeoning Japanese empire in Asia and the Pacific. Jettisoning the confederation style government of the Tokugawa era, the new leaders of the new Meiji government fashioned a unitary state with powerful ministries consolidating authority in the capital, Tokyo.
The freshly minted Ministry of Education promoted compulsory primary schooling for the masses and elite university education aimed at deepening engineering and scientific knowledge. The Ministry of Finance created the Bank of Japan in , laying the foundations for a private banking system backed up a lender of last resort. The government began building a steam railroad trunk line girding the four major islands, encouraging private companies to participate in the project.
Not surprisingly, the merchants in Osaka, the merchant capital of Tokugawa Japan, already well versed in proto-industrial production, turned to harnessing steam and coal, investing heavily in integrated spinning and weaving steam-driven textile mills during the s. At the same time, the abolition of the three hundred or so feudal fiefs that were the backbone of confederation style-Tokugawa rule and their consolidation into politically weak prefectures, under a strong national government that virtually monopolized taxation authority, gave a strong push to the diffusion of best practice agricultural technique.
The nationwide diffusion of seed varieties developed in the Southwest fiefs of Tokugawa Japan spearheaded a substantial improvement in agricultural productivity especially in the Northeast. Simultaneously, expansion of agriculture using traditional Japanese technology agriculture and manufacturing using imported Western technology resulted. Growth at the close of the nineteenth century was balanced in the sense that traditional and modern technology using sectors grew at roughly equal rates, and labor — especially young girls recruited out of farm households to labor in the steam using textile mills — flowed back and forth between rural and urban Japan at wages that were roughly equal in industrial and agricultural pursuits.
Between and , electrification mainly due to the proliferation of intercity electrical railroads created economies of scale in the nascent industrial belt facing outward onto the Pacific. Finally, the widening and paving during the s of roads that could handle buses and trucks was also pioneered by the great metropolises of the Tokaido, which further bolstered their relative advantage in per capita infrastructure.
In addition to geographic scale economies, organizational scale economies also became increasingly important in the late nineteenth centuries. By the s these had evolved into highly diversified combines, binding together enterprises in banking and insurance, trading companies, mining concerns, textiles, iron and steel plants, and machinery manufactures.
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By channeling profits from older industries into new lines of activity like electrical machinery manufacturing, the zaibatsu form of organization generated scale economies in finance, trade and manufacturing, drastically reducing information-gathering and transactions costs. By attracting relatively scare managerial and entrepreneurial talent, the zaibatsu format economized on human resources.
The push into electrical machinery production during the s had a revolutionary impact on manufacturing. Small enterprises did not mechanize in the steam era. Each machine could be powered up independently of one another. Mechanization spread rapidly to the smallest factory. With the drive into heavy industries — chemicals, iron and steel, machinery — the demand for skilled labor that would flexibly respond to rapid changes in technique soared.
Large firms in these industries began offering premium wages and guarantees of employment in good times and bad as a way of motivating and holding onto valuable workers. A dualistic economy emerged during the s.
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Small firms, light industry and agriculture offered relatively low wages. Income per head was far higher in the great industrial centers than in the hinterland. The economic strains of emergent dualism were amplified by the slowing down of technological progress in the agricultural sector, which had exhaustively reaped the benefits due to regional diffusion from the Southwest to the Northeast of best practice Tokugawa rice cultivation. Tenants also found their interests disregarded by the national authorities in Tokyo, who were increasingly focused on supplying cheap foodstuffs to the burgeoning industrial belt by promoting agricultural production within the empire that it was assembling through military victories.
Japan secured Taiwan from China in , and formally brought Korea under its imperial rule in upon the heels of its successful war against Russia in Tenant unions reacted to this callous disrespect of their needs through violence. The relative decline of the United Kingdom as an economic power doomed a gold standard regime tied to the British pound. The United States was becoming a potential contender to the United Kingdom as the backer of a gold standard regime but its long history of high tariffs and isolationism deterred it from taking over leadership in promoting global trade openness.
Germany and the Soviet Union were increasingly becoming industrial and military giants on the Eurasian land mass committed to ideologies hostile to the liberal democracy championed by the United Kingdom and the United States.
Strategies for Achieving Sustained High Economic Growth: The Case of Indian States
Create a national market for goods and services. Pending legislation regarding a national goods and services tax, replacing the Byzantine maze currently in place, could go a long way to creating a market that would be among the largest in the world.
Privatize public enterprises and deregulate industries to enhance competition. This process was begun in but stalled shortly thereafter. Much remains to be done, said Jorgenson, but serious efforts are underway to discard red tape, and talk has begun about some privatizations. Reform monetary policy and the regulation of financial services.
Reduce the elaborate system of employment protections to encourage job creation. Social programs and restrictions on businesses remain among the biggest challenges to business and labor productivity advances, said Jorgenson. India appears to be acknowledging the need for employment reforms, but much remains to be done in this regard, he said. Jorgenson considers himself an India optimist. His 6.
Between and the most recent data cited , the World Bank calculated India to be No. Beyond wishy-washy, paragraph-long truisms that academics, politicians and laypeople have credited with economic growth, he sought some quantifiable metrics.
Comparing State-level policy responses to economic reforms in India
Globally, the KLEMS analysis shows a pronounced economic leap forward around , when annual growth topped 4 percent. Although global growth slowed to around 3. In both countries, money made all the difference. By all measures, productivity growth is set to slow from what many observers consider an overheated pace.
Related Strategies for Achieving Sustained High Economic Growth: The Case of Indian States
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