Dr. Osamu Shimomura's Legacy and the Postwar Japanese Economy

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.

We selected five papers by Dr. Shimomura and analyzed important issues such as his vision of zero-growth, policies to stabilize low-growth economy, discipline and equilibrium, Reaganomics, and bubble economy. When the oil crisis broke out in 1973, Dr. Shimomura suddenly changed his vision of high growth (10% a year) to zero-growth (1–2% a year). This change in forecast surprised the business community of Japan. Dr. Shimomura urged them to prepare for a zero growth. Dr. Shimomura warned that the fiscal and monetary policies cannot completely resolve the economic problems. He emphasized that consumers, labor unions, businesses, banks, and the government should exercise discipline to stabilize zero growth. In this case, discipline implies that stakeholders of an economy should take into consideration the whole scenario and exercise self-control. Dr. Shimomura emphasized maintaining a balanced budget. He criticized the US Reaganomics in the 1980s and Japan’s bubble economy in the second half of 1980s. As the data analysis shows, the zero growth vision was right. If some special and unsustainable reasons are excluded, then it can be seen that Japan witnessed an annual growth rate of almost 1–2% for 40 years since the oil crisis. The keywords that Dr. Shimomura thought important in a zero growth economy are innovation, equilibrium, and discipline.

This chapter considers what the economic factors make that contributed towards stagnation in the Japanese economy so stagnant. We focus on the following three factors: surge in foreign direct investment (FDI); enlarged aggregate demand management policies, and; serious digression of managerial skills. First, the flux of FDI deprives Japanese workers of good employment opportunities, and causes a decline in domestic capital investment, thereby, extinguishing opportunities of business upturn. Second, public-debt accumulation is accelerated around the turn of the twenty first century. Unless the government goes to bankrupt, the current expansionary fiscal-monetary policies is unsustainable. This fact implies that the “Growth Strategy” has a numbering effect, and Japan would witness the economic devastation unless the inefficiency in the supply side of the economy were improved. Finally, the Japanese social security system depends on the overall growth of the economy. There is likelihood that the rapid aging and reduction of population would possibly topple the system from the bottom. This scenario would require needs heightening the production efficiency urgently. We provide a mathematical example in which the progress in managerial skills emerges on an immediately basic urgency as a change in the total factor productivity (TFP). The results show that observed lower or negative growth TFP suggesting stagnation or deterioration in managerial-skill development.

We clarify the essence of corporate management, which is based on Dr. Shimomura’s vision of a zero-growth economy. It is necessary to observe the three principles of sustainability in a zero-growth economy and maintain the social common capital proposed by Professor Uzawa in an appropriate state to maintain a sound world economy. Corporate management in the twenty first century should establish a clear vision for contributing toward the realization of a sustainable market economy. In Japan, corporate management is changing. Corporate social responsibility (CSR) is considered important for environmental management, and stakeholder management (SHM) or “Japanese management practices” are considered essential for developing competitive strategies. Recently there has been a convergence between CSR and SHM. In short, the corporate management division of leading firms is now integrating CSR and SHM. These firms are changing their strategy to realize the new vision of global sustainability. It can be stated that a stable and sustainable economy implied by Dr. Shimomura’s vision of zero-growth will be realized through proactive and cooperative stakeholder management in visionary companies.

Dr. Shimomura was an economist as well as a theorist. He was famous for the dynamic growth theory, which was based on works of Keynes, Harrod, and Schumpeter. Based on his theory, he was confident that the Japanese economy would fluctuate but remain stable, and that it would attain high growth in the 1960s. In addition, he had a sharp insight into the future of the Japanese economy and presented us with two visons: high growth in the 1960s and “zero growth” after the oil crisis in 1973. Looking back, his visions provided a clear and correct direction of the Japanese economy. Once he expressed his visions publicly, he never changed them. He was determined and confident. He thought it very essential to maintain stability and equilibrium in the “zero growth” economy. He stressed that economic agents should exercise disciplines or self-restraint because the period of laissez-faire was over. He opposed the neo-liberalistic policies of the government and firms.