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Conclusion and the Secret Weapon

Course Code
Jack Carr

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April 7, 2009
-Japan is suffering from:
Land bubble 1989
Stock market 1990
Plaza Accord-reevaluated Yen in 1985 against the US dollar
Importance of low labor cost for industry and driving savings and economic growth in Japan, MiTI
export-led growth story
-feature of Japanese eco growth in 50-89
1) lifetime employment, unemployment was under 1%
-on the job training, labor is treated as valuable asset
2)main banking system-(]vv]o<]µUuvµX]v[ZÀ}Á}Ç}µ(]vv]vPUv}µPvv
to make immediate short term profits, no test for profitability
3)Keiretsu, distribution keiretsu system supported growth
5)Japan had a positive savings and investing ratio, financed its own economic growth
6) Priority on Education,
-from asset to liability, some ofthese turned around
1) Lifetime employment-aging workers, stagnant, no incentive to improve ideas, high wage rates
2) The main banks, 1989-90, banks made many loans for stock market and land speculation, bad
loan obligations were over a trillion US dollars
3) Keiretsu-system lacks flexibility, high cost, only 1 chain for 1 brand
4) Industrial policy, export led growth, industrial countries resist penetration of Japanese exports,
had many exports in South Asia as well in 1997 crisis
5) Japan tried stimulus packages but changed the government from surplus to strong deficit,
domestic savings went down
6) Education- new industries required thinking, Japanese education form was for memorizing, not
a lot of original thinking
7) Transfer of agi. To industry has been completed, had a shortage of labor force
-move away from government guidance, open economy and reduce regulations
William Lewis- Y/Population=Y/labor x L Bar /pop
Per capita income tripled, labor productivity is also tripled in the country when that happens
-Japan has a dual economy-have a high powered small industrial, existing with a low labor productivity
traditional sector
-Japan is an economic power house, country converged upon US using purchasing power parity to
measure, from ¼ -4/5 convergence
-since 1989 per capita income gap has widened
-education and dedication to labor force has been changed-finish the job, more leisure
-still have high domestic household savings, government is still pro-growth
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-basic industries-electronics, auto-have performed very well, top labor productivity of all the Japanese
firms, but they represent only 10% of the labor force in Japan
-if want to converge further, have to increase the labor productivity faster
-Japan has the other 90% that are not in the high productivity industries, small retail stores that are
inefficient, majority of labor force is inefficient
-to grow and converge, increase productivity, Japan has to transform
-small retail shops have strong ties to political parties in Japan
-status quo, peace and tranquility, if want economic growth, will have to transform
-Toyota has the highest labor productivity of any auto company, but the automotive industry in Japan
needed 220,000 workers, and retail has 7.5 million workers, housing 2.3 million, 1.3 in food processing
-In Us, retailing has transformed, larger stores, Wal-mart, specialty stores, chains
-Japan still has mom and pop small scale shops, with 1/3 of the labor productivity of the US retail sector
-Taxes favor uoo}UP}À[subsidizes small stores, get strong political support from owners of small
]o}Uv[ZÀ}es bigger than 2000 square feet
-this hurts Japanese economy, destroy competition, lowers economic growth, higher prices for
consumer due to no economies of scale, fewer alternatives
-Japanese will not allow extended life inputs into milk to extend shelf life, retail stores get 3 milk
deliveries a day-inefficient
-housing, basic construction, low productivity, 45% of the labor productivity of US housing industry
-Japan is interested in producer economics, Lewis says lower consumer prices, more choice is better
-concern in US in 1980s about performance, to change its form of capitalism, to communitarian
capitalism, being pushed by Japan and Germany
-Lewis says this is wrong
-US productivity slowed down in 1967, 70, productivity came back in 1995
-The US economic report to president in 2001, 1995-2000 was reported period
-have a new economy, it was led by the IT sector-government,
-government thought IT sector would lead and drive productivity for the next few decades, lead to
more tax rev., more surplus in future, can eliminate national debt, government had a tax cut
-Lewis and his team found that manufacturing has 60 sectors, in 1995-2000, analysis showed that only 6
out of 60 had strongly increased, wholesale trade, retail trade, security brokers, microprocessors,
computer assembly, mobile phones
2 characteristics
-industries with extremely high productivity levels with a small labor force-microprocessor, computers
-large labor industries with significant labor productivity increases-retail trade, wholesale trade-
together,1/5 of the labor force in US
-semiconductor sectors increase 22%, computers 33% increase in productivity
-Lewis thought something was off, looked at employment of semiconductors and computers, was less
than 1/5 of 1% of labor force
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