THE REAL ECONOMICS OF GROWTH AND DEVELOPMENT
By Arthur Lake
Politics interferes with growth and development more than people like to admit. Japan has always had thousands of very small firms that actively develop to the needs of a few very large firms. Japan can infinitely produce more than it can sell. For Japan to grow it needs to negotiate trade arrangements that allow its surpluses a market elsewhere.
Economies of scale and a multiplicity of downward cost curves yet in a world that is growing more protectionist means that for Japan to grow it needs to expand its domestic demand.
The best thing would be a significant shift in the mix of what the Japanese buy. By having the government do more, households have more to spend and can trade up on quality. Thus, expansion of government spending while lowering taxes would spur growth.
This means running a significant deficit and potentially inflation as consumers shift to higher priced better quality items, which incidently would be easier to export.
Trading up consumption, trading up government participation in R and D. Paying higher wages and raising interest rates for savings through the issuance of high return Government bonds available ONLY to lower income households would change the mix of financial returns away from the stock market to government backed pension savings.
Higher government debt works in the correct direction weakening the exchange rate and discouraging external borrowing. By having wage inflation and higher disposable incomes the internal demand would grow while commerce makes bigger profits on downward sloping cost curves.
The stock market would grow on real returns. The pressure on domestic demand and higher incomes would pay down government debt sooner while the public sector expands and expands.
Everyone would be better off including the rest of the world.
Now vary the country name from Japan to Great Britain, United States, China, etc and ask why the world is not growing ...
Arthur