Abstract
This chapter considers what the economic factors make that contributed towards stagnation in the Japanese economy so stagnant. We focus on the following three factors: surge in foreign direct investment (FDI); enlarged aggregate demand management policies, and; serious digression of managerial skills . First, the flux of FDI deprives Japanese workers of good employment opportunities, and causes a decline in domestic capital investment, thereby, extinguishing opportunities of business upturn. Second, public-debt accumulation is accelerated around the turn of the twenty first century. Unless the government goes to bankrupt, the current expansionary fiscal-monetary policies is unsustainable. This fact implies that the “Growth Strategy ” has a numbering effect, and Japan would witness the economic devastation unless the inefficiency in the supply side of the economy were improved. Finally, the Japanese social security system depends on the overall growth of the economy. There is likelihood that the rapid aging and reduction of population would possibly topple the system from the bottom. This scenario would require needs heightening the production efficiency urgently. We provide a mathematical example in which the progress in managerial skills emerges on an immediately basic urgency as a change in the total factor productivity (TFP) . The results show that observed lower or negative growth TFP suggesting stagnation or deterioration in managerial-skill development.
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Notes
- 1.
It must be noted that Shimomura’s zero-growth was defined more widely given. He regarded zero-growth as a slightly positive economic growth around 1–2%. This rate corresponds to the actual average growth rate of Japan since the outbreak bust of the bubble at the beginning of the 1990s. In this sense, Shimomura’s prediction was correct although he could not ascertain this fact (Shimomura passed away at 1989). However, unexpected depressive socio-economic factors, which are analyzed in this chapter, emerge from the 1990s, the zero growth in Shimomura’s sense becomes unsustainable.
- 2.
In Chap. 6, we reconsider the corporate governance problem from a different perspective.
- 3.
Many light-headed economists dubs the era from the 1990s to the 2000s “The Lost Two Decades.” Their ritual phrase is “Regulation delays the economic recovery. More deregulation!” Elementary economics teaches us that entirely laissez-faire economy achieves the best consequence only under quite an idealistic situation (The first-fundamental theory of welfare economics) such as perfect competition and perfect information. In general, such presumptions are not upheld. Accordingly, even though we must prioritize free economic behavior, simultaneously, we must accept the corresponding regulation to achieve the best outcomes. In this sense, the flux of deregulation is evidently unwise. The Japanese economy needs the rational and liberal economic thoughts and discussions based on the economic reality.
- 4.
- 5.
It must be noted that these figures include non-manufacturing industries.
- 6.
One might argue that cumulative investment costs are sunk in overseas factories and affiliates, and hence, intensive FDI behavior is the rational response of Japanese firms. However, as will be discussed below, when we recognize JPY is not the key currency under a flexible exchange rate system, it is arguable whether investment costs are really sunk and repayable.
- 7.
See Otaki (2015b, Chap. 13) for more detail on the income effect to capital investment in a general equilibrium growth model. This income effect is verified only when the good markets are engaged in monopolistic competition.
- 8.
According to BSOBA (2014), the net profits of overseas Japanese affiliate amounts to 7 trillion JPY. FSSCI (2014) estimates that such profit of the domestic corporation is about 37 trillion JPY. 16% of profits are emerged from overseas. Hence, no one can neglect the economic consequences of FDI whenever one explores the future of the Japanese economy.
- 9.
See Otaki (2015b, Chap. 9) for more rigorous discussion on this problem.
- 10.
Otaki (2015a, Chap. 5) considers the reason d’être of a firm from the perspective of nurturing dexterity.
- 11.
The aggregate supply function is mathematically defined as
$$ y = \psi \left( {\lambda \left( {e^{*} \left( {y^{d} } \right),e^{*} \left( {y^{d} } \right)} \right),\lambda \left( {e^{*} \left( {y^{d} } \right),e^{*} \left( {y^{d} } \right)} \right),y^{d} } \right). $$(5.12) - 12.
Note that there is no guarantee that the aggregate supply curve is continuous when there are multiple Nash equilibria. This is because a bifurcation possibly occurs along with an increase in the aggregate demand (see Fig. 5.4). For the sake of simplicity, we exclude such a case. Even though the aggregate supply function is discontinuous, such a curve is located rightward of \( AS^{*} \).
- 13.
Otaki (2015c) rigorously proves that there is no exception that the issuance of public debt becomes the burden of the future generation, which is measured by welfare term.
- 14.
For more precise discussion on the Structural Reformation, see Otaki (2015a, Chaps. 5 and 6).
- 15.
This type of aggregate demand function is derived from two period overlapping-generations model with a linear homogenous Cobb-Douglas utility function. Equilibrium price can be determined independently from the nominal money supply. Concerning this subject, see Otaki (2015b, Chap. 2) for more detail.
- 16.
\( y^{d} = \theta \left( {y^{d} } \right) \) may have many solutions. However, the solution, which possesses the economic meaning, is confined to the case, where Eq. (5.15) is upheld. That is, the solution should be limited to the case where \( y^{d} = \frac{m}{1 - c} \). Figure 5.6 confirms the existence of such a solution.
- 17.
For simplicity, we regard number of hours as a proxy of the employee’s effort.
- 18.
For example, see Fukao (2012).
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Horiuchi, K., Otaki, M. (2017). Current Zero Growth Era. In: Dr. Osamu Shimomura's Legacy and the Postwar Japanese Economy . SpringerBriefs in Economics(). Springer, Singapore. https://doi.org/10.1007/978-981-10-5762-5_5
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