Japan's economy miracle after WW2

four factors contributed about two percentage points each to the 8.77 percent annual growth rate of national income between 1953 and 1971. The four, in order of importance, were: increases in capital (2.10 percentage points); advances in knowledge and factors not elsewhere classified (1.97); economies of scale (1.94); and increases in labor (1.85). Most of the remaining growth was accounted for by reallocation of resources away from the inefficient agricultural sector.

The major cause of Japan's large increase in capital was its large increases in investment. Almost one out of every three yen of Japanese production in 1970 and 1971 was invested in capital. This private investment, in turn, was financed largely by Japanese saving.

Many people believe that Japan's outstanding growth is due in large part to MITI. They believe that MITI has decided what industries the Japanese should invest in, and that MITI persuaded other Japanese government agencies to use their coercive power to get companies to go along. But the evidence goes against this view. (MITI: Ministry of International Trade and Industry)

Between 1953 and 1955 MITI did persuade the government's Japanese Development Bank to lend money to four industries—electric power, ships, coal, and steel. Some 83 percent of JDB financing over that period went to those four industries. But even with hindsight, what has not been established is whether those were good investments.

By one reasonable measure—government spending as a percent of GNP—government's role in Japan is less than in any other major industrialized country.

Another way Japan is less interventionist is in antitrust policy. Japan, unlike the United States, has no antitrust restrictions on joint research and development. This allows Japanese companies to avoid duplicating each other's research.

Japan's government also allows banks to own stock.Because Japanese banks own stock and because many bank officers sit on company boards, they can discipline managers.A further advantage of allowing banks to own stock is that a bank confident of a company's future can back it when other creditors get scared.