The Historicity of Economic Growth: Considerations to be given to growth policies

Fellow, RIETI

The historicity of economic growth

As a specialist in economic history, I would like to discuss viewpoints on economic growth and the growth policies of recent years from a somewhat historical perspective. Although opinions on economic history have diversified over recent years, the historicity of particular subjects should not be overlooked in conducting analysis. In other words, it must be noted that the character of certain subjects is not absolute in nature but instead changes with the times.

In that sense, the idea of "economic growth" that we now accept as conventional wisdom is by no means as ancient as mankind itself. Indeed, the first time that the term "economic growth" appeared in the title of a technical book on economics was about 1955 (Note 1). Government economists were quick to focus on this term. The 1956 Economic White Paper declared an end to economic activities dependent on post-war reconstruction, and, as suggested in its sub-title "The Growth and Modernization of the Japanese Economy," the term "economic growth" had begun to be used to describe real changes in economic activity (Note 2). In 1960, the National Income Doubling Plan was announced, and "economic growth" had become common parlance by the time that Shuji Hayashi's Ryutsu Kakumei [Distribution Revolution] (Chuko Shinsho) became a bestseller in 1962.

Underlying the extensive adoption of the concept of "economic growth," which can be seen as a measure of the year-to-year increase in the gross national product (GNP) as an indicator of national economic activity, was the realization in a way of people's expectations (Note 3). Growth is achieved, in principle, through increases in the working population and improvements in per capita productivity. It is important to bear in mind that the machinery industries made significant headway in the post-war Japanese economy and that workers saw their incomes rise (Note 4). Machinery industries not only faced considerable spillover effects from higher employment, but also had the potential to achieve high productivity. Greater productivity created resources available for allocation to companies and workers, putting in place the foundations for cooperative labor-management relations that brought about higher wages for workers and encouraged them to work even harder. Foundations were also laid for producing and consuming goods and services in vast quantities. For many people, prosperity became more tangible with each passing year.

Even as the term "economic growth" gained currency, however, the underlying economic foundations promoting growth began to change (Note 5). There was a switch from a society characterized by mass consumption centered on products with little distinctiveness (refrigerators, television sets, etc.) to one in which people's selective desires could be better fulfilled. The impact of this change was evident, for example, in the increasing orientation of the automobile industry toward high-mix, low-volume production, inevitably resulting in upward pressure on costs and revealing the first signs of limits to productivity rises. Of course, the Japanese economy regularly achieved relatively high growth rates from the 1970s until the bursting of the bubble economy, but annual growth rates of 10% as seen during the post-war economic miracle were now a thing of the past.

Viewed in this manner, economic growth can be understood to be a product of a particular era for the economic activities of the Japanese people. Well-established machinery industries appear to be a precondition for high growth, but, depending on the modality of demand, such an industrial composition may not always result in improvements in productivity. Various service industries did arise and come to represent a growing share of the economy as people sought more personalized consumption, but the nature of these industries does not lend itself to strong expectations of improved productivity. Even so, it has become widely accepted that a society achieving growth is a normal state of affairs, with the consequence being that the post-bubble Japanese economy is now seen as an aberration needing correction.

Considerations to be given to growth policies

If it seems necessary now to insist on economic growth even while rationally accepting that present economic circumstances are not necessarily conducive to growth, there are several points that should be considered. Here I will address just two of these points. The first is the sense of expectations that people invest in the term "economic growth." "Economic growth" is often discussed in terms of growing employment opportunities, rising salaries, and expanding business opportunities, but, as far as employment and salaries go, it is not at all obvious that the benefits of improved productivity would be distributed to workers. This may in fact be an issue pertaining to policy approaches to employment and social insurance. Of course, some may say that growth is a prerequisite for addressing this issue, but questions about the nature of a desirable growth-based society must be asked while considering growth policies.

Second, growth is not necessarily realizable only by bolstering the role of the market. If growth stems in great part from rising productivity, then that role will come from venues of organized collaboration. The most important point is how to regard corporate activities. It is critical that we not only think of the role of the market but also ponder the processes by which resources are distributed to companies generating growth and by which goods and services are produced through workers' forward-looking efforts in order to uncover the potential of companies as production organizations. In this sense, it should be kept in mind that rising productivity, the key to economic growth, is not directly achieved by reinforcing market functions as suggested in the terms market principles and deregulation.

August 6, 2013
  1. ^ Takeda, Haruhito, Kodo Seiccho [Rapid Growth] , Iwanami Shinsho, 2008, "Introduction."
  2. ^ Use of the expression "_% growth rate" in policy papers began around the time of the Income Doubling Plan. Miyazaki, Isamu, Shogen Sengo Nihon Keizai: Seisaku keisei no genba kara [The Postwar Japanese Economy: An Eyewitness Account of Policy Formation] , Iwanami Shoten, 2005, p. 109.
  3. ^ The template for GNP statistics as a key indicator of economic growth is said to have been created by British economists from the latter half of the 19th century through the beginning of the 20th century (Yoshikawa, Hiroshi, Kodo Seicho [Rapid Growth] , Chuko Bunko, 2013, "Conclusion"). In this sense, GNP is also an artifact of history. The fruits of the Industrial Revolution had steadily begun to emerge, and the concept of GNP arose out of interest in how to view the real state of economic activity in the production of various goods and services.
  4. ^ Takeda, Haruhito, ed., Nihon Keizai no Sengo Fukko: Mikan no kozo tankan [The Postwar Recovery of the Japanese Economy: An incomplete structural adjustment, Yuhikaku Publishing Co., Ltd., 2007.
  5. ^ Takeda, Haruhito, ed., Kodo Seichoki no Nihon Keizai: Koseicho jitsugen no Joken ha nanika [The Japanese Economy during the Economic Miracle: What are the conditions for achieving rapid growth? , Yuhikaku Publishing Co., Ltd., 2011.

August 6, 2013

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