The Human Capital Basis of the Japanese Miracle: A Historical Perspective

One of the most conspicuous events that has occurred in the Japanese economy since the Second World War has been the sharp downward kink in its growth trend, beginning in the 1990s. For nearly three decades, from the mid-1950s to the oil crisis of 1973–4, the Japanese economy had recorded an exceptionally high rate of growth of about 10 percent per year, during which its real GDP per capita nearly trebled. As a result, Japan advanced from being a lower-middle-income economy to one of the high-income economies. This high economic growth, which Japanese economists commonly call kodo keizai seichou (literally, “high-speed economic growth”) was unprecedented in history, although soon replicated by other high-performing economies in East Asia. Thus, this phenomenon can be seen as a forerunner of the East Asian Miracle (World Bank, 1993). After a relatively quick recovery from stagflation caused by the oil crisis, the Japanese economy continued to display such an outstanding performance throughout the 1980s that the expression “Japan as Number One” became the vogue during this period. As such, it may not be an exaggeration to call Japan’s four decades from the 1950s to 1980s the “Japanese Miracle.” However, the economy plunged at the beginning of the 1990s, with the country experiencing zero economic growth throughout the period commonly known as the “lost decade.” The Japanese economy has not yet been able to regain its previous vigor; until recently, its annual growth rate was below 3 percent, the lowest of the major industrialized countries.