Abstract
We select nine papers, which Dr. Shimomura published in the 1950s and 1960s, and explain his original vision of high growth, open-macro growth theory, and fiscal and monetary policy for achieving a high growth economy. He is well known as the economic advisor who designed the National Income Doubling Plan for Prime Minister H. Ikeda in 1960. Dr. Shimomura clearly expressed that the Japanese economy would be capable of attaining a growth rate of 10%. His vision that the Japanese economy was witnessing a historical rise encouraged Japan’s citizens who were depressed due to the outcome of the war. His long-term forecast of high growth surprised economists, professors, and government officials. He had a famous and heated controversy with them in 1959. Most of them were in favor of stable growth (lower growth). Actually, his forecast turned out to be the most accurate. He proposed a macroeconomic growth policy, which was most proactive and aggressive in the world at that time. The keywords that Dr. Shimomura thought important are innovation, equilibrium, and freedom with self-responsibility. He became a leading economist attracting significant attention from businesspersons.
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Notes
- 1.
Dr. Shimomura’s works attracted attention from the academic community, as he presented cutting-edge research at that time [see Uzawa (1991)].
- 2.
Economists often insist that the reduction of corporate tax will consequently increase the investments of a firm. Investments that are induced by a tax cut are considered weak investments. Autonomous investments are strong investments, which are a function of time. High economic growth is realized by such strong investments.
- 3.
According to Murakami (1971), Dr. Shimomura’s paper was a painstaking and pioneering work in a sense that he was the first economist who applied the macroeconomic theory after Keynes to the real Japanese economy. Murakami added that this paper was a classic, which should be remembered.
- 4.
His model (1955) is as follows.
-
(a)
Internal equilibrium
Increase in supply: △YS = σI−1
Increase in demand: △YD = {1/(s + t + m)}(△I + △G + △X)
Supply = demand: △YS = △YD = △Y
-
(b)
External equilibrium
An increase in export = an increase in import: △X = △M = m△Y
Values of parameters: σ = 1.0, s = 0.3, t = 0.27, m = 0.13;
then △I + △G = 4.4△X
I−1 = 7.7△X
Where, △YS is an increase in supply, σ is output-capital ratio, I−1 is investment in previous year, △YD denotes an increase in demand, △I stands for an increase in industrial investment, △G stands for an increase in public expenditure, △X denotes an increase in export, △M represents an increase in import, s is saving ratio, t stands for tax rate, and m stands for import ratio.
-
(a)
- 5.
See Shimomura (1971) for his collected papers.
- 6.
In many cases, capital includes public and private investments. This was one of the most important points in the controversy. Dr. Shimomura insisted that the investment of private firms forms the basis for the productive capacity of a country. He believed that rapid growth would make it possible for the government to allocate resources to invest in public infrastructure. According to the capital stock data, the output-capital ratio for Japan was 1.1 in the 1960s and 0.5 in the 1970s. It declined further due to an increase in investments for pollution control and energy-saving [see Horiuchi (1998)].
- 7.
Dr. Shimomura and R. Komiya were critical proponents of a stable growth theory because their way of thinking was occupied with experience acquired during the prewar gold standard days [see Nakayama and Economist (1960)].
- 8.
Papers of Dr. Shimomura, Okita, Yoshino, Tsuru, and other economists, who participated in “growth controversy,” were compiled in the Kinzai Institute for Financial Affairs (Ed.) (1959).
- 9.
As per Dr. Shimomura’s Plan, the net investment (In) was used for output-capital ratio (σ = 1). The ratio of replacement investment to gross investment was estimated to increase from 15% in 1961 to 20% in 1970. An increase in aggregate supply capacity (ΔYc) was calculated as ΔYc = σ • In−1 = In−1
- 10.
The essence of dynamism of high growth economy will be summarized as follows:
-
1.
Aggregate investment of previous year (I−1) increases the same amount of aggregate supply capacity of this year (ΔYc), whereas an increase in aggregate investment (ΔI) increases aggregate demand (ΔYd) by multiplier effect.
ΔYc = σ • I−1, where σ is output-capital ratio and 1.
ΔYd = 1/s • ΔI
As σ is large, an increase in aggregate supply capacity (ΔYc) exceeds an increase in the aggregate demand (ΔYd).
ΔYc > ΔYd
-
2.
As autonomous investment increases rapidly, aggregate investment (I) exceeds aggregate savings (S), which pushes up the aggregate effective demand.
I > S.
-
1.
- 11.
The general tendency in Japan at the time was as follows. In calculating consumer prices, the weight of manufactured goods was 0.5 and that of services was 0.5. The economy grew 10% annually. In manufacturing industries, the increase in productivity and wages were 10% annually. In service industries, the increase in productivity was 0 and wages increased 10% annually, under full employment. Subsequently, the wholesale prices remained stable and consumer prices increased 5% annually.
- 12.
After the oil crisis, however, exports increased and domestic demand remained weak; as a result, the Japanese economy became export-oriented.
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Horiuchi, K., Otaki, M. (2017). Vision of High Growth and Performance in 1960s. In: Dr. Osamu Shimomura's Legacy and the Postwar Japanese Economy . SpringerBriefs in Economics(). Springer, Singapore. https://doi.org/10.1007/978-981-10-5762-5_3
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