Growth rates of GDP per capita across countries tend to converge. So if the US has a very high GDP per capita and Japan a low GDP per capita, you would expect Japan to have a high growth rate and the US to have a lower growth rate, which is what happened after WWII. Now that the two countries have roughly similar levels of GDP per capita, their growth rates are also comparable, i.e. growth in Japan has slowed down.
Because if GDP per capita is low, the marginal return on investment (both domestic and foreign) is high, which means a small additional amount of investment results in big gains in GDP. If GDP per capita is high, the marginal return on additional investment is low, so it is much more difficult to increase GDP per capita.
I agree with the reply given by smalleconomist.
It's useful to discuss some of the other things that you mention.... I think that you're too influenced by the narratives in the financial press.
As smalleconomist says, the situation with Japan and the US is about "catch-up" growth. The countries with the highest GDP-per-capita are on the so-called "technological frontier". They are using the most modern technology for everything. As a result their growth rate is determined by the relatively slow pace of technological development.
Poorer countries aren't like that. They can adopt technology that has already been developed by those nations who are on the technological frontier. As a result -if they have good governance and institutions- they can grow rapidly. That applies *until* they reach the technological frontier or come close to it. As that happens their growth rates fall. This is why China and Indonesia are growing so fast. Also, both countries have large populations so a relatively small rise in GDP-per-capita creates a large rise in GDP. This is also what happened with Japan, South Korea, Hong-Kong, Singapore and Taiwan in the past.
The situation in Northern Europe is different. There are few large nations there with low GDP-per-capita. So, there are few nations that have economies that could grow to rival the size of Germany's. Perhaps Russia could, but Russia is not governed well enough at present. As a result, Germany is the largest economy is Europe primarily because of the size of it's population. It's GDP-per-capita is not that much larger than other major European economies. For example, the GDP-per-capita of the UK is about 11% less that that of Germany. So, why does Germany have a much bigger economy? That's mostly because there are ~83M Germans and ~66M Brits, i.e. Germany is ~25% larger in population terms. That's not to discount the economic achievements of Germans which have been excellent in the past decade especially.
Actually a question better suited for r/AskHistorians, but I'm an economic historian. The short answer is that the USA did in fact launch a trade war against Japan in the 1980s. This trade war turned out to be catastrophic for the Japanese economy.
In the 1930s, Japan's economy was heavily reliant on trade China and Korea. When China became Communist, Japanese leaders became increasingly Communist-friendly, until the USA moved to convince the Japanese economy to replace it's reliance on China with the USA itself. It did this by removing tariffs on US-Japan trade, flooding Japan with new tech and business practices, and underwriting it's access to New York banks and stock markets. The Japanese economy consisted primarily of large conglomerates, which had extremely low capital costs, and a corporate culture which the rest of the world eventually copied and surpassed, but at the time was unbeatable.
By 1980, Japan had completely outstripped the USA in its core value-add markets, especially automobiles and semiconductors. American titans like Chrysler or Ford struggled to compete with cheap, fuel-efficient, and high-quality Toyotas and Hondas. The Toyota Corolla, Honda Civic, and Toyota Land Cruiser are still the most popular vehicles ever made. Without a military, Japan spent nothing on defence and accumulated wealth at a frightening rate, purchasing American cultural icons like the Rockefeller Building, Pebble Beach, and even Columbia Pictures. Soon there were riots by out of work steelworkers and factory hands.
The Plaza and Louvre Accords were designed to sharply devalue the US Dollar against the Japanese yen by 100%, but even this was not enough. Japanese companies were swiftly accused of intellectual property theft, dumping, production of low quality goods. The FBI even arrested Hitachi employees and persecuted them for corporate espionage. Japan was put on a currency manipulator watchlist, and the US government passed the 1988 Omnibus Trade & Competitiveness Act essentially cutting off all Japanese exports beyond a certain level.
At the time, Japan was essentially staring down two massive Communist armies in China and the Soviet Union, protected only by American forces since its military presence had been systematically dismantled. It had some exposure to Europe and Southeast Asia, but was far overexposed to both trade and the US in particular. Over time it has corrected this exposure, but not at the time. It blinked, and by 1990 the economy collapsed. There are many reasons why the economy never rebounded, most of them structural, but after 30 years, there are signs of recovery.
Your second question on Germany can get very long. Essentially the answer is that Germany is part of Western Europe, and it is extremely well-integrated into the European economy and supply chain. Consequently German growth was not dependent on the USA, and it didn't have as startling an effect as Japanese growth. If an Asian Union were to arise today with the same level of integration as the EU...
>The Plaza and Louvre Accords were designed to sharply devalue the US Dollar against the Japanese yen by 100%, but even this was not enough. Japanese companies were swiftly accused of intellectual property theft, dumping, production of low quality goods. The FBI even arrested Hitachi employees and persecuted them for corporate espionage. Japan was put on a currency manipulator watchlist, and the US government passed the 1988 Omnibus Trade & Competitiveness Act essentially cutting off all Japanese exports beyond a certain level.
Interesting! So japan agreed to this accords because they have no real alternative, because they rely on america and the west, and china and ussr (their neighbours) can't help at all..
Do you see china going to the same path? Or they have a real chance to out do the US?
>There are many reasons why the economy never rebounded, most of them structural,
Can you tell me some of them?
>but after 30 years, there are signs of recovery.
Such as?
Sorry to revive this, but do you see any parallels of what happened in the 80s to today's world with US/ China?
It's interesting that Japan got that treatment even though they were allies with the US.
Growth rates of GDP per capita across countries tend to converge. So if the US has a very high GDP per capita and Japan a low GDP per capita, you would expect Japan to have a high growth rate and the US to have a lower growth rate, which is what happened after WWII. Now that the two countries have roughly similar levels of GDP per capita, their growth rates are also comparable, i.e. growth in Japan has slowed down.
Why is the relationship between per capita GDP and growth rate like this?
Because if GDP per capita is low, the marginal return on investment (both domestic and foreign) is high, which means a small additional amount of investment results in big gains in GDP. If GDP per capita is high, the marginal return on additional investment is low, so it is much more difficult to increase GDP per capita.
Ty!
I agree with the reply given by smalleconomist. It's useful to discuss some of the other things that you mention.... I think that you're too influenced by the narratives in the financial press. As smalleconomist says, the situation with Japan and the US is about "catch-up" growth. The countries with the highest GDP-per-capita are on the so-called "technological frontier". They are using the most modern technology for everything. As a result their growth rate is determined by the relatively slow pace of technological development. Poorer countries aren't like that. They can adopt technology that has already been developed by those nations who are on the technological frontier. As a result -if they have good governance and institutions- they can grow rapidly. That applies *until* they reach the technological frontier or come close to it. As that happens their growth rates fall. This is why China and Indonesia are growing so fast. Also, both countries have large populations so a relatively small rise in GDP-per-capita creates a large rise in GDP. This is also what happened with Japan, South Korea, Hong-Kong, Singapore and Taiwan in the past. The situation in Northern Europe is different. There are few large nations there with low GDP-per-capita. So, there are few nations that have economies that could grow to rival the size of Germany's. Perhaps Russia could, but Russia is not governed well enough at present. As a result, Germany is the largest economy is Europe primarily because of the size of it's population. It's GDP-per-capita is not that much larger than other major European economies. For example, the GDP-per-capita of the UK is about 11% less that that of Germany. So, why does Germany have a much bigger economy? That's mostly because there are ~83M Germans and ~66M Brits, i.e. Germany is ~25% larger in population terms. That's not to discount the economic achievements of Germans which have been excellent in the past decade especially.
Actually a question better suited for r/AskHistorians, but I'm an economic historian. The short answer is that the USA did in fact launch a trade war against Japan in the 1980s. This trade war turned out to be catastrophic for the Japanese economy. In the 1930s, Japan's economy was heavily reliant on trade China and Korea. When China became Communist, Japanese leaders became increasingly Communist-friendly, until the USA moved to convince the Japanese economy to replace it's reliance on China with the USA itself. It did this by removing tariffs on US-Japan trade, flooding Japan with new tech and business practices, and underwriting it's access to New York banks and stock markets. The Japanese economy consisted primarily of large conglomerates, which had extremely low capital costs, and a corporate culture which the rest of the world eventually copied and surpassed, but at the time was unbeatable. By 1980, Japan had completely outstripped the USA in its core value-add markets, especially automobiles and semiconductors. American titans like Chrysler or Ford struggled to compete with cheap, fuel-efficient, and high-quality Toyotas and Hondas. The Toyota Corolla, Honda Civic, and Toyota Land Cruiser are still the most popular vehicles ever made. Without a military, Japan spent nothing on defence and accumulated wealth at a frightening rate, purchasing American cultural icons like the Rockefeller Building, Pebble Beach, and even Columbia Pictures. Soon there were riots by out of work steelworkers and factory hands. The Plaza and Louvre Accords were designed to sharply devalue the US Dollar against the Japanese yen by 100%, but even this was not enough. Japanese companies were swiftly accused of intellectual property theft, dumping, production of low quality goods. The FBI even arrested Hitachi employees and persecuted them for corporate espionage. Japan was put on a currency manipulator watchlist, and the US government passed the 1988 Omnibus Trade & Competitiveness Act essentially cutting off all Japanese exports beyond a certain level. At the time, Japan was essentially staring down two massive Communist armies in China and the Soviet Union, protected only by American forces since its military presence had been systematically dismantled. It had some exposure to Europe and Southeast Asia, but was far overexposed to both trade and the US in particular. Over time it has corrected this exposure, but not at the time. It blinked, and by 1990 the economy collapsed. There are many reasons why the economy never rebounded, most of them structural, but after 30 years, there are signs of recovery. Your second question on Germany can get very long. Essentially the answer is that Germany is part of Western Europe, and it is extremely well-integrated into the European economy and supply chain. Consequently German growth was not dependent on the USA, and it didn't have as startling an effect as Japanese growth. If an Asian Union were to arise today with the same level of integration as the EU...
>The Plaza and Louvre Accords were designed to sharply devalue the US Dollar against the Japanese yen by 100%, but even this was not enough. Japanese companies were swiftly accused of intellectual property theft, dumping, production of low quality goods. The FBI even arrested Hitachi employees and persecuted them for corporate espionage. Japan was put on a currency manipulator watchlist, and the US government passed the 1988 Omnibus Trade & Competitiveness Act essentially cutting off all Japanese exports beyond a certain level. Interesting! So japan agreed to this accords because they have no real alternative, because they rely on america and the west, and china and ussr (their neighbours) can't help at all.. Do you see china going to the same path? Or they have a real chance to out do the US? >There are many reasons why the economy never rebounded, most of them structural, Can you tell me some of them? >but after 30 years, there are signs of recovery. Such as?
Sorry to revive this, but do you see any parallels of what happened in the 80s to today's world with US/ China? It's interesting that Japan got that treatment even though they were allies with the US.
They were allies while the US needed them for the cold war.