Profitability and Growth in Multiregion Systems: Interpreting the Growth of Japan

This paper reports calculations about reasons for the exceptional growth of Japan and for the slowdown in growth in the OECD since the early 1970s. The calculations are based on a multi-region off-equilibrium dynamic model of the two regions. It is argued that the exceptional rate of growth of Japan can be ascribed primarily to the fact that it has invested more of the OECD's capital than would be predicted simply on the basis of the relative capital stocks in the two regions; the fact that Japan's target rate of expansion of supply has far exceeded that of the rest of the OECD (ROECD), and, to a lesser extent, the fact that labour has been replaced in production faster in Japan than in the ROECD. Even if all exogenous variables and parameters had remained constant through the period 1960–90, rates of profitability, accumulation, and growth would have slowed, particularly in Japan. The Japan—ROECD system was on a trajectory far above dynamic equilibrium levels of profit, accumulation, and growth in 1960; to a large degree the post-1973 slowdown is simply the effect of the system returning to a trajectory that is nearer dynamic equilibrium. Superimposed on that internally driven slowdown have been the effects of changes in the proportion of investment that is allocated to the two regions and in the target rates of expansion of supply. This evidence argues strongly against theories of the Golden Age (regulation theory, the theory of industrial divides, theories of the organisation of capitalism) which identify special conditions that were operating in the 1950s and 1960s to raise rates of profit and growth.