This month's featured article
Law and Economics on Market Quality
YANO MakotoPresident and Chief Research Officer, RIETI
A century ago, Louis D. Brandeis, an associate justice of the U.S. Supreme Court, quoted Professor Charles H. Henderson as saying, "A lawyer who has not studied economics and sociology is very apt to become a public enemy." This is a very thought-provoking statement. In Japan, law scholars and economists are not properly communicating with each other. This situation is very problematic for the Japanese economy.
In social science, a method that appears to have no direct relation is often considered to be an effective way of achieving a goal. This concept, called the "theory of roundaboutness," had an enormous impact on legislation as well as on 20th century economics and social sciences particularly in such fields as corporate governance and mechanism design.
However, it is no good taking a roundabout route in a haphazard manner. We need to find an efficient way of doing so. What social science tells us is to take an evidence-based approach to form ideas based on scientific evidence such as statistical data.
Stagnation in the Japanese economy and market quality The Japanese economy has been stagnant for a prolonged period of time. During its bubble period, Japan's gross domestic product (GDP) per capita reached a level closest to that of the United States, but has been faltering ever since the burst of the bubble. I believe that the absence of a high-quality market is the reason.
A market is a pipe channeling new technologies and resources to people's lives. If the pipe is straight, clean, and in good quality, natural resources and science technologies will be channeled through and lead to better livelihoods. However, if the pipe is bent, rusty, and in poor quality, things clog up and stagnate.
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