Transition from High Growth to Stable Growth: Japan’s Experience

A nice speech from Masaaki Shirakawa, Governor of the Bank of Japan. The speech is given on account of Central bank of Finland’s 200th anniversary. So there are some nice anecdotes linking Japanese economy with Finnish:

I felt it would be best to compare the experience of the Japanese economy from its high-growth period onward, with that of the emerging economies which are currently growing at a very rapid pace. Although it is not well-known, Japan’s automobile  industry  first ventured into the European markets through Finland back in 1962. At that time,Japanese automakers had little name recognition, and one firm, in order to prove the safety of its car to Finnish consumers, had the car driven off a ski-jumping hill. I have been informed that the car landed safely and the driver was not harmed. The 1960s, when such episodes of Japanese firms were born, was the heyday of the Japanese economic miracle.


He then discusses the Japan’s high growth phase:

Japan’s post-war economic recovery began from a situation where capital stock equivalent to 86% of GDP had been lost due to World War II. It is usually understood that Japan’s period of high growth began in the mid-1950s and ended in the early part  of the 1970s. During this 15 year period, the average rate of economic growth was nearly +10% (Slide 2).

Three factors for this high growth –

  • First, favorable demographics
  • Second, the use of competitive forces.
  • Third, the benefits of global free trade.

With the burst of the bubble the first two factors that resulted in high growth turned adverse as well. Demographics worsened and Japanese firms/models were no more the flavour of the global economy:

the business model which had supported the strong growth of Japanese firms was no longer compatible with the changed economic environment. The strength of Japanese firms was the pursuit of operational efficiency enabled by large  scale production and sales. You all know the detailed management of production and inventories through the “just-in-time process” and the “Kaizen system” which has become a part of the English language. Such pursuit of efficiency gains is naturally important. But as other countries  such as the Asian emerging economies rapidly catch-up with advanced economies through technological progress, global competition becomes more intense and increased profits cannot be generated simply through such efficiency gains.

He says lessons could be learnt by current EMEs:

Japan’s experience shows, when income levels increase together with strong economic growth, each society faces various new challenges. A smooth transition from high growth to stable growth is quite a challenge. From the perspective of a country  which has been facing these challenges for some time, I would like to share with you some of the lessons we have learned.

He says following lessons need to be learnt:

  • Preventing bubbles
  • Reviewing business models
  • Preparing for demographic change



This transition from middle income to high income is going to be a major challenge. They need to avoid this middle income trap as explained in this super speech from  Rundheersing Bheenick, Governor of the Bank of Mauritius. 

Niranjan Rajadhyaksha discusses the scenarios for Asia based on a recent ADB study. See this table on the difference it would make for Asian economies if they are able to avoid the middle income trap. In middle income trap average per capita income in India would be USd 17,800. Without it, it zooms to USD 41700.


3 Responses to “Transition from High Growth to Stable Growth: Japan’s Experience”

  1. Mahesh Says:

    Impressive Sir.

    I am silent reader of your blog. Your cross connection to original post is impressive.


  2. Tirath Says:

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  3. PB Says:

    Great original stuff. This is going on my facebook.

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