BUSINESS
21th

REPORT
ANNUAL<in"E./t-

THE

RESEARCH INSTITUTE FOR
AND BUSINESS ADMINISTRA[TION
ECONOMICS
KOBE UNIVERSITY
1975

KOBE
IC & BUSINESSREVIEW
21th

ANNUAL REPORTs"gtt•k

Spal

THE

RESEARCH INSTITUTE FOR
AND BUSINESS ADMINISTRATIONECONOMICS
KOBE UNIVERSITY

1975

CONTENTS
Page
Regional Development Policies
of Japan in Recent Quarter
ofthe Twentieth Century .................,..................Minoru BEIKA 1

Natjonal Income and Expenditure
at Factor Cost in Japan 1955-1970:

A Macro-Accounting for Growing Economy ....Nobuko NossE 23
Efficiency and Acceptability
in Optimal Growth Path ...................................Hikoji KATANo 39

An Equitable Distribution of theCosts and Benefits of Economic
Integration ...............................................Yoshiaki NlsHIMuKAi 53

Japanese Business Abroad:Past, Present and Future................................Hideki YosHsHARA 63

POLICIES OF JAPANREGIONAL DEVELOPMENT
TWENTIETH CENTURYIN RECENT QUARTER OF THE
Minoru BEIKA

I. Introduction
The regional 'development policies of Japan are now confronted with aserious situation and have reached a turning point not only due to environment conditions, natural resources, and urban problems, but also due to the
problem-consciousness of the "limjts of growth." The writer intends to lookback at the characteristics and problems of the regional development policies
of Japan in these twenty or thirty years after the Second World War.
The subject is to consider the following three points.

1. The recent quarter of this century can be divided to the following five
periods from the view point of regional development.

(1) The restoration period of the War damage - from 1945 (after the War)

to 1950 (the Korean War)(2) The economic reconstruction period -from 1951 to 1955(the time it
recovered the prewar economic level)(3) The first period of economic growth -from 1956 to 1960
(4) The period of the double national income increase policies from 1961
to 1970(5) The environment-conscious period (the reaction period to high economic

growth) - from 1971 to the present
2. In the five periods, the regional development policies are to be investigatedon the three levels: regional development, industrial location and urban problems.

3. A comparative research between the post-Second World War Japan, andEngland and America from the beginning of this century, with regard to theirregional development policies and actual accomplishments. The subject to bestudied here, is inter-connected with the above three view points.

II. The First Period (1945-1950)
For several years after the end of the War, the restoration of the War damage

was the most urgent regional problem in Japan. In this period, the policies for2 MINORU BEIKA
democratization, such as the dissolution of the "Zaibatsu," the agrarian reform,
the legislation of several laws related to labour unions and so on, were,enforced

in succession by the Allied Forces with the establishment of a new Constitution(1946). At the same time, welfare policies which had been neglected before andduring the War, were gradually put into reality on a minor scale. It was the time

when most drastic changes took place in Japan. Some examples of the newly
enacted laws for welfare policies, were the Livelihood Protection Law (1946), theEmployment Security Law (1947), the Child Welfare Law (1948) and Disabled
Persons Welfare Law (1950). In this period, important works on the regional
level were the reconstruction of the damaged cities, and the settlement of thefood shortage problems.

(1) Regional Development
Comprehensive regional development policies in original meaning of theterm could not be adopted for a few years after the War, because one of themost urgent problems was to secure food for the whole population of almost
one hundred million. Therefore, though the national land planning for reconstruction was tentatively set up, it had little effect. The development plan-ning for food security and emigration of repatriates was framed and worked
well to some exteng only in Hokkaido, the northern largest island of Japan.

(2) Urban Problems
As stated before, one of the most urgent problems after the War was thereconstruction of some one hundred War-damaged cities. The public reconstruction works were gradually carried out under severe economic conditions on.thebase of the Temporary Special City and Town Planning Act(1946). The larger
part of the temporary reconstruction planning had been nearly completed by
1958, except for the six representative larger cities. But real state of the reconstruc-tion works were on a low level from the view point of the original city planning.
The reasons for this situation were not only the severe economic conditions afterthe -War, but also unskillfulness in the realization of city planning, to which wewill refer later. Rather good results have been obtained in road improvement
and in creating green tracts in some cities. To this, we shall add here some' for-mal comments. The Special City and Town Planning Act was abolished in
1954, because its function came to end. The original City and Town Planning
Act had been established in 1919 and was revised wholly in 1968. Moreover, it
must be added that the Local Self-government Act was established in 1948
for the development of democratic and efficient local government.

3
REGIONAL DEVELOPMENT POLICIES OF JAPAN IN RECENT QUARTER
OF THE TWENTIETH (]ENTURY@Regional Development in Anglo-American Countries during This Period(1945-1950)

Regional development, industrial location and urban problems in AngloAmerican countries during this period are briefly compared to those in Japan as

stated above, the writer admitting limited knowledge and information in thisregard.

(1) The United Kingdom
The United Kingdom adopted regional policies for in'dustrial decentralization soon after the War and enacted the Distribution of Industry Act of 1945.
These policies were set up on the base of many experiences i'n development polir.
cies made alreadybefore the War. The Town and Country Planning ?Lct of 1947
seems to have promoted the regional policies. These acts have restricted further
plant locations in the highly industrialized districts, and encouraged new indus.-'

trial plants to be built in other development districts by creating industrial.
estates in the northern part' of England, Scotland and Wales.

Moreover, New Town projects were planned by the New Town Act of 1946.

The New Town Development Corporations started to construct about twenty
towns, respectively thitty or forty miles apart from the existing large cities. It

is well-known that the New Towns of the United Kingdom were comprehensively
planned to have industrial, residential and other functional urban areas, forpreventing population increases in the existing large cities. These new towns
having industrial and residential functions are different from the so-called "newtowns" of Japan which are chiefly bed towns adjacent to existing large cities as
we will demonstrate later.

It is very impressive for us Japanese that the regional development and new

towns policies which were planned and started promptly after the War, were
founded on the grave experiences made in the latter half century before the War.
The regional policies for industrial decentralization started with the Special

Areas Act of 1934 which intended to decrease regional unemployment after theWorld Depression ofthe 1930's. The physical system of the industrial estates

which was an important mean for industrial decentralization, began with thefirst attempt in Manchester in 1897. The attempt was an experimental mean to

avoid the blame that industrialization had brought urban landuse disorderduring the one hundred years since the industrial revolution. The New Town
projects,also sprang from the ideas and experiences of the Garden City Movement by Ebenezer Howard in the early part of this century.

MINORU BEIKA

4(2) The United States of America

While the regional development problems were tackled on the nation-widelevel only in the 1960's and the environmental pollution problems in the 1950's,,the policies for these problems had already been put forward on the level of theState, Counties and Cities. The policies for air pollution in Pittsburg, and thecontrol system of air pollution in Los Angeles County are some of the typicalcases. Moreover, some urban renewal projects in principal cities had been
started with the Housing Act of 1949 etc., in the same period. A comparison
will be made later.

I[I. The Second Period (1951-1955) - Economic Reconstruction

The Japanese Economic White Paper of 1956 characterizes the year of1955 in as far as the prewar economic level has been recovered. Therefore, thesecond part of this article is limited to the economic reconstruction period fromthe Korean War (1951) to the year of recovery (1955).

The General National Land Development Law was established in 1950. In
the same year, the reform of the taxation system included the fixed property tax

system by which the local governments could get the new revenue. The systemallowed most local governments to attract rapidly and competitively new industrial
plants. This period includes several years after the start of these regional policies.

(1) Regional Deyelopment
The General National Land Development Law of 1950 prescribes its object
in Article I, that is, it aims to use, develop and conserve the whole national landcomprehensively, and to realize a reasonable industrial distribution, taking into

consideration from natural conditions, and to improve social-welfare, from thesynthetic view point of economic, social and cultural policies. The Article IIprescribes to set up the comprehensive planning on each level; the national, prefectural, local and special areaslevel. But in reality in this period, the planningwas set up only on the special areas level, and not on the other levels.

As increase of food production, development of power resources, development
ofunused resources, and prevention of natural desasters in mountains and river

districts were the most urgent works to undertake in economic reconstruction
during this period, the deyelopment of the main river basin districts in the wholecountry was to be giyen preference in regional development policies. Accordingly,
twenty-one main river basin districts were specified as Special Areas, and given

successiyely a complete development planning, which was to be carried out withthe assistance of the central and local governments. Besides, the primary wholeREGIONAL DEVELOPMENT POLICIES OF JAPAN IN RECENT QUARTER 5
OF THE TWENTIETH CENTURY
regional development planning was prepared for 1952 to 1957 in Hokkaido, laying emphasis on the food production increase.

Such form of the regional development focused on the water basins was
not only aimed at a most efficient utilization of natural resources for maintaining the lives of nearly one hundred million people, but also stimulated by
the idea of the TVA(Tennessee Valley Authority) which had been put into reality

in the United States of America. The system of the TVA was introduced toJapan a few years after the War.
The TVA was established in 1933 for the development of the Tennessee basin,
as one of the projects of the New Deal. It was one of the experiments ofcomprehensive planning o•f regional development. It had multi-goals; these included thedevelopment of power resources, dam building, river transportation, flood
control, production of fertilizer, improvement of agri-business, forest conservation and social development of the relating districts. Some literatures on the

TVA were introduced to Japan a few years after the War, and was fairly
popular. Therefore, the idea of the TVA also seemed to prombte the development planning with emphasis on river basins in Japan.
While the idea of the TVA is based on "Unification of Nature" and "Participation by People," and it aims at multi-goals, nevertheless, in our case, theregional development policies for Special Areas in main river basins seemed notalways to succeed according to the real meaning of multi-goals. The multi-goalsof the projects were hampered by the conventional vertical practice of administ-

ration. Development projects of water power generation were successively
realized, but the many related projects in the basins remained insufficient.

(2) Industrial Location

As stated before, the fixed property tax was provided as one of the local
taxes to give assistance to local governments of 1950. The movement by many
local governrnents to attract new industrial plants became active after that, withencouragement policies through reduction or exemption of local taxes and providing plant sites etc. 32 prefectures and 243 cities had enacted regulations forindustrial attraction at the beginning of 1956.

The central government, too, gave assistance for arranging industrial sites
and related public facilities, based on the Law for Promotion of Industrial Rationalization (1952). In those days, "industrial location" which had attracted little
interest before, was given unexpectedly attention. Accordingly, theoretical studies

for the industrial location were undertaken in Japan by a few specialists, ands6me informations for industrial location could be obtained. A few scholars
were engaged in the study of location problems under poor conditions.

MINORU BEIKA

6

In this period, the sites of the• former munition factories and War-relocatedfactories of the War time, had the main industrial attraction in local districts. One

ofthe representative cases is the iron works of Chiba city in the suburbs ofTokyo Where in 1951, the forerunner of the new iron works located in threebays of the central industrial districts; Tokyo, Ise and Osaka Bay was founded.
Some sites of the former military fuel factories were also considered as petrochemical industrial complexes. The realization of the latter projects took placein the next period, 1955 and thereafter.

(3) UrbanDevelopment
The reconstruction works of the War-damaged cities were continued by the
Temporary Special City and Town Planning Act in this period. It is interesting to note that in this period the government established some specified city
construction acts for several cities in order to carry out their own future visions.

They were the Construction Acts, of the Peace Memorial City of Hiroshima(1949),
of the International Cultural City of Nagasaki (1949), of the International Port

City of Yokohama, and Kobe (1950), of the International Cultural and Tourist
City of Kyoto, and Nara (1950), and others. Each of them was enforced after avote by the inhabitants. This •was a characteristic phenomenon of the immediate
postwar time, although its actual efficiency was questionable. In the later periodof high economic growth, the vision of individuals of the city tended to beoverlooked. It was only in the period of the environment-consciousness thatimportance was attached once again to the individuals of cities.
@ Regional Deyelopment in Anglo-Ameriean Countries during This Period

The writer intends here to make a comparative study of regional and urban
problems in Anglo-American countries during this period (1951-1955).

(1) The United Kingdom
Regional and urban policies which had emerged in the latter halfof the
1940's were gradually carried out by restricting the industrial location in thealready highly industrial districts of the south of England and by the promotionof industrial decentralization to the depressed areas of the north of England,

Scotland and Wales. Though it had been disputed that these regional policies
to decrease the regional gap of the unemployment rate would be able to solve
the internal social problems to any extent and that they might bring a loweringin the international competitiveness of industries, the actual experiences of thesepolicies during several years seemed to prove that they did not always have thefeared results. The regional policies changed the regional structure of dense

REGIONAL DEVELOPMENT POLICIES OF JAPAN IN RECENT QUARTER 7
OF THE TWENTIETH CENTURY
localization of certain industries to a relatively diversified structure. At the sametime, the actual results promoted theoretical studies in the relation between mana-

gement problems and location factors.
The construction of New Towns, including industrial estates, was continued
in this period, and some results were obtained in the following period.

(2) The United States of America
In the 1950's, an enormous development of technological innovation changed
the industrial structure of the United States of America. The technological de-yelopment brought economic prosperity as well as severe unemployment. Unemployment appeared in the regional industrial structure. Regional unemployment was one of the foremost local problems in the ten years after 1950. In the

U.S.A., unemployment problems used to be attacked on local levels; in state,city or community. Needless to say, it is a rule that the Federal Government
avoids meddling in local problems. It was, however, in 1961, that the Federal
Government challenged actually the local unemployment problems with a related

law, as unemployment had become a national-wide problem. It was•a kind ofregional development policy on the national level.

Moreover, the construction of highways promoted not only rapidly thedevelopment of the suburbs in the met ropolitan regions, but also brought depres-sed downtown districts. In this period, many planned industrial districts weredeveloped in suburbs of the whole country, and they were called indUstrial parks.

They.were based on the attempts made in Chicago in 1905, which resembled theManchester industrial estates of 1897, which we mentioned above.These attempts
of managed estates for industry intended to attain multi-goals making it easy forindustrial firms to select new suitable industrial sites and for the communities'

to maintain good environmental conditions. Because•the industrial revolution of

the nineteenth century had brought a disordered landuse and an undesired community climate, and later industrial plants had gradually become unwelcome by
the communities. The new type of planned industrial districts has improved.theirown quality. and the environment, and had their own management in the U.S.A.
and was a unique experiment of park-like planned industrial districts especially in

Dallas, Texas in 1938. Such industrial parks developed rapidly nation-wide, inthe 1960's. TVA, to which we referred above, was developed in this period.

rv. The Third Period (1956-1960) Restoration and Growth
Around 1955 when our economic conditions passed the prewar level, it entereda period ofgrowth. National planning for regional development began to be8 MINORU BEIKA
investigated, but the plans could not be carried out at that time, due to theconflicts between national, regional and local view points, and the conflicts
among various functions of the administration. The first conclusion for a national regional planning was finally reached in 1962, in the following period.

(1) Regional Development
During ,this period, the regional development policies laid more emphasis
on heavy and chemical industries in the coastal districts tfian on the developmentof the river basins as in the former period. The movement by local governments
of attracting new industriai plants to local districts continued as actively as before.

The arrangement of conditions for industrial location was promoted actively inthe various coastal districts by the centrai and local governments. Various
public works for industrial development started in this period, on the base of

the newly established Water Works for Industry Act, the Principal Drive Way
Construction Act, the National Expressway Act and other related acts.
Some acts for regional development of this period are the Capital Metropolitan

Regional Act (1956), the T6hoku (northeastern part) Development Act (1957),
the KyUshU (western large island) Development Act (1959), the Shikoku (middle-

western island) Development Act (1960), the ChUgoku (westernpart) Development
Act (1960), and the Hokuriku (norther part ofmiddle districts) Development Act(1960). These acts aim at the planning ofregional development projects and thepromotion of their realization with the financial help of the central government.

Above all, the T6hoku (northeastern part) region which is a forerunner forregional development planning, had been confronted with a serious depression

by the world economic panic and the damage from cold weather in the early
1930's, and had already started a kind of development planning before the War.

During this period, the philosophy and policies for the regional development of Japan were in the conflict between economic efficiency in international

competition, and the prevention of 'excessive concentration of industries andthe promotion of their decentralization. For this reason the general national
regional development planning could not be accomplished in this period.
(2) Industrial Location

The movement by many local governments of attracting new industrial
plants had been competitively active since the former period. It led gradually toinefficiency of landuse and diffiCulties of local finances. The Ministry of Inter-national Trade and Industry ofthe Central Government began to provide nationwide information for the industrial distribution and industrially suitable sites toprepare some control of industrial location. In 1959, new industrial locations

REGIONAL DEVELOPMENT POLICIES OF JAPAN IN RECENT QUARTER 9
OF THE TWENTIETH CENTURY
were restricted in the highly industrialized sections of the Capital Metropolitan

Region. The Ministry of International Trade and Industry encouraged new plants
to be located at specified sites based 'on the research for industrial location,ayoiding as much as possible other sites. These policies were inspired by theexperiences made by the United Kingdom.
The national research for suitable sites for industrial location during thisperiod has brought some results and problems.
(a) It threw light to some extent, on the locationa'1 conditions of most of
our land for industries through continuous research over the years.

(b) Though it supplied only information of the conditions for industries
independent of the proprietorship of'the sights, it has been one of the bases forthe industrial location policies of the government.

(c) Most of the sites selected for these investigations were outside the
districts concerning the City Planning Act, and no landuse planning had yet been
undertaken. Therefore, the selection of suitable sites for industries was necessarily tentative and it had a little effect only on the competitive landuse between

the manufacturing industry and agriculture.

(d) As the selection was based on the current needs and administrative
feasibility, it was often contradictory to a long range expectation for regional de-velopment.
(e) Accordjngly, the research for a suitable location of industry has notalways brought the expected results, but it has been helpfu1 in supplying infor-

mation for industrial location, and has promoted the formulation of landuse
planning.

(fi Moreover, the local governrnents, which had not well grasped, the realconditions of their districts, were gradually able through the research to know

them better. As the problerns of landuse and urbanization have become morepressing since then, the Act for the research for suitable industrial location has
gotten insufficient.

Actually, a remarkable industrial development during this period was achiev-

ed in the petroleum refining industry to which soon the petrochemical industry

was,added. These plants •for petroleum'refining developed in various formersites of national military fuel plants. The early petrochemical industrial com-

plexes were developed on these coastal sites. Moreover, some new essential
petrochemical industrial complexes were built on large new coastal sites.

(3) Urban Development
Urban development has been gradualiy achieved, but only in the large
metropolitan regions. Some projects for urban renewal and suburban develop-

MINORU BEIKA

10

ment for housing were carried out. On the one hand, smaller projects for urban
renewal at station plazas and in shopping streets were planned and experimented
with by readjusting town lots. On the other hand, new residential sections on asmall scale were planned and experimented with in suburban districts of larger
cities by the Japan Housing Corporation and the local public corporations.
Aside from these, the first major project for a big new suburban residential

town was undertaken, namely the Senri New Town, by the prefectural government of Osaka. Though it was called "New Town," it is very different comparedto the "New Towns" of the United Kingdom. While the latter are multi-functional (residential and industrial) satellite towns, independent of the large cities

as mentioned above, the former has only a residential function and is a larger

sized town, having a population of 200 or 300 thousand. This experimental
project of Osaka brought the new Act of development of residential town in
1963 and new residential towns of the same type were constructed thereafter inthe suburbs of Tokyo and Nagoya as well as in Osaka.
In this period (1956-1960), the problems of urbanization were to some extent.

challenged seriously in Japan, but confined to the large metropolitan regions

and these projects of development and renewal have tended to be plannedmono-functionally. The idea of "industrial estates" or "industrial parks" as in

Anglo-American countries also has been introduced to Japan in this period,and some projects have been carried out, b'ut they have been corrupted tomono-functional systems, ignoring multi-goals.
@Regional Development in Anglo-American Countries in this period (1956-1960)(1) The United Kingdom
The progress of the ten years of regional development policies since theend of the War, had such effects as a relative 'decrease of unemployment rates
and the introduction of new kinds of industries to the depressed areas. The policies

have become more flexible and applied also to less depressed districts. Therefore,

the Development Areas which had been specified by the Distribution of Industry

Act of 1945, included now smaller Development Districts due to the new Local

Employment Act of 1960. At the same time, the kinds of industries were enlarged to include not only industrial plants but also offices and warehouses.

Three Industrial Estates Management Corporations were established inEngland, Scotland and Wales, to manage more efficiently industrial estates,
which had been the base for the diversified industrial structure in depressed areas.

The experimental projects of flatted factories for small business in downtown districts were completed in 1960 in the` central district of'Birmingham, bed

REGIONAL DEVELOPMENT POLICIES OF JAPAN IN RECENT QUARTER 11
OF THE TWENTIETH CENTURY
cause there were not a few small businesses which could not move from thecentral districts to the industrial estates of suburban districts.

Some New Towns were approaching completion. Queen Elizabeth ll visited
Stevenage, one of the New Towns in April, 1959. Though it could not be answered at this time, whether the project would be able to prevent the concent-ration of the population of Greater London, the building of New Towns themselves seemed to be a success.

(2) The United States of America
It was in 1961, that serious problems of regional unemployment due to technological i'nnovation were first challenged by the Federal Government, as statedabove. In that period (1956-1960), the construction of industrial,parks was
remarkably active and their number amounted to 1,OOO or over in the whole coun-try by 1960. Their sponsors were of real estate companies, railway companies
and community bodies such as chambers of commerce and local governments.
The industrial parks in the United States of America include not only industrial plants, but also warehouses, shops and business offices. So to speak, they area kind of industrial communities. Moreover, some of industrial parks, chiefly
consisted of research firms, so-called research parks, which were found jn theprincipal cities especially in the 1950's.

In.the latter half of the 1950's, when many projects of urban renewal andconstruction of express ways were carried out, effects and side effects began to
be investigated, their merits and demerits. This is equivalent to the now so-called

assessment of projects. In these assessments importance was attached to the
problems of smaller businesses.

V. The Fourth Period (1961-1965) from the Peried of High Economic Growth
to the Period of Reconsideration

The ten years of national planning to double the national incomebegan in
1961. The actual national planning for the regional development was formulated

in 1962. An enormous economic growth was realized, but the result was notalways satisfactory from the view point ofregional development and moreoverin 1965 and later, the economic growth brought undesired environmental problems. The regional development policies had soon to be reexamined.

(1) Regional Development
After many years of discussions about the development philosophy andpolicies on central and local leyels, since the latter half of the 1950's, the na-

12 MINORU BEIKA
tional planning of regional development was formulated in 1962.

It aimed at preventing the excessiye economic concentration'inNa few central districts and at decreasing the regional income gap in the local districts. In
order to attain these aims, the public investment policy intended not to adapt the

all round principle, but gave the priority to a few new industrial development
districts aside from three central industrial districts. To enforce these policies,

some acts were established between 1962 and l964. They were the Act to pro'mote the construction of new industrial districts, the Act to promote industrialization of poorly developed districts, She temporary development Act of coal-mining areas and some other related acts. The policy of designation of new
industrial districts stimulated most local prefectural governments to request that
their own districts should be given priority, though at first only a few districts

had been expected to get the designation. All except one of the designateddistricts for new industrial development, were in coastal regions, and expected
to develop heavy and chemical industries.
In these new districts the whole industrial development planning was carefu11y formulated, but its realization lasting several years, has not aiways brought
the desired results.

(a) Each designated region attained the aimed growth rate of industrialization, but not all were able to increase rate of their population. .
(b) The rate of economic growth of the whole country was higher than thatof the designated districts. Therefore, it is obvious that industrial activitiesare
relatively concentrated in the already existing central districts.

(c) A remarkable unbalance of industrial development was found in
twenty new industrial development districts.
As the result, the policies were reexamined in about 1965. The interim reportof the committee for the reexamination of the Economic Planning Agency indicated some problems.
(a) The concept of the regional income gap was the base of these development policies. But the real problems were not merely the regional income gap,
but essentially the regional gap of living conditions. The problem was not a
fundamentally statistic gap, but concerned regional actual conditions. The statis-

tics was somehow a reflection of the real conditions, but they were only a key todeeper problems. However, the regional development policies aimed at decreasing
directly the statistic gap, and so big projects such as the iron or petrochemicalindustrial complex in the coasta1 areas were meant to attain these aims. These
policies seemed to succeed in a few districts, but they could not•be adapted wellto the others. They led not only to the economic concentration in the existing
central districts, but also to the gradual increase of the environment problems.

13
REGIONAL DEVELOPMENT POLICIES OF JAPAN IN RECENT QUARTER
OF THE TWENTIETH CENTURY(b) As the policies adhered to the statistical gap rather than to the real
problems with which each district was confronted, a uniform pattern of regional
development was apt to be applied, and indiyiduality or real problems tended to

be overlooked.
(c) The relations between the nationally expected industrial location and thedecision-making of industrial locations by individual industrial firms were theoretically and realistically not understood well.

(d) Though the regional statistical gap was one of the problem-consciousness
approaches jn Japan, it was less serjous than the regional unemployment prob•-lems in Anglo-American countries as we have stated above. The extent of theseverity of regional problems characterized the policies and their realizations.

(e) The development policies of the new industrial districts aimed to promote their projects through respectiye well-planned urbanization. But actually

the industrial development tended to precede a comprehensiye planning inciuding social and physical development.
(2) Industrial Location
In the first half of the 1960's, heavy and chemical industries deyeloped on
the reclaimed land of the coastal industrial districts; namely three central coastal

bay areas of Tokyo Bay, Ise Bay and'Osaka Bay, and Pacific belt coastal areas
linking the three Bays. However, high-added-value industries such as the elect-ronic and electric machinery industries developed chiefly in the surrounding
districts of the three central industrial districts, espe.cially the metropolitan re-gions. They are related to the phenomenon of so-called doughnut-like urbanization. These regional patterns of industrial development were characteristic

in Japan and were reexamined in about 1965.
From the view point of industrial location of Japanese industries, theloca
tional patterns are of two types. One includes the foot-tight industries such as

the iron and petrochemical, chemical and other heavy raw-material oriented
industries, and the other type includes the foot-looseindustries such as engineering,

electronic and other high-added-value industries. The first type tends to locate incoastal districts, conveniently situated, and is found in both the central and rural

districts, several of which were designated as new industrial development districts. The second type is found chiefly in the surroundings of central districts.
This type is •to be generally found in various districts, and called foot-loose dueto the characteristic of high-added-value. However, in this country, this is not so.

It seems to be one .of principal reasons why the regional income gap could not
be decreased through industrial development policies, while the so-called foot-tight industries contributed to decrease the regional gap, more or less. Why

MINORU BEIKA

14

were these foot-1oose industries located near the central districts and not in
distantruraldistricts? It seems to be related to an environmenta1 and historical
pecuriality in Japan and a characteristic business feature of Japanese industrial

firms. The writer thinks that the way to solve this problem needs not only therecognition by policy makers of thereal business features in individual indu•-

strial location, but also the decision makers to change the existing businessfeature in order to prevent an excessive industrial concentration.

The development of the heavy and chemical industries in the coastal districtsrose the level of the low-income regions, but it could not realize some other expectations as we shall see.

(a) The expectation for increasing local employment could rarely be realized,

because these new apparatus industries did not need local employment to theextent it was expected.

(b) The same reason applies to the allied industries, The heavy industries
attracted not as many allied industrial plants as expected. Fundamentally, theforward integration of the basic industries does not bring as many allied indus-

tries as the backward integration of the assembly industries. Moreover thesefoot-tight industries brought the new environmenta1 problems to the rural districts.

(c) Urban development
The urban problems had not been given much attention in the policy making for regional development in Japan. Due. to the severe conditions after theWar, the priority was accorded to the macroscopic standpoint in regional deve

lopment. In addition, technology and knowhow of urban development had been
introduced to some degree in Japan before and after the War, but our country
had fewer urban problems than the European and American countries, where
they appeared already at the beginning of this century.

Urban problems surfaced gradually and some projects related to urban
renewal were tried •in part, but they were limited to the centra1 metropolitan re-gions. Moreover, they were challenged rather mono-functionally, while these
problems were essentially multi-functionai and needed a highly systematic
approach.
(a) The National Planning of Regional Deveiopment(1962)aimed to develop
new industrial development districts aside from the existing central industrial districts including the planning of urbanization of these new districts. But in fact,industriai development only was emphasized and the planned urbanization
was overlooked. In other words, industrial development preceded social develop-

ment and thus both ofthem were not fu11y synthesized in physical projects. It

might be perhaps inevitable under the environment conditions of that 'time

and due to inexperience. 'REGIONAL DEVELOPMENT POLICIES OF JAPAN IN RECENT QUARTER 15
OF THE TWENTIETH CENTURY<b) Some projects of urban renewaland suburban development were undertaken in the central metropolitan regions, though they were rather mono-func-

tional projects. Since the beginning ofl955, urban renewal was carried out,
based on the already existing act of readjustment of town lots, and a new act for
urban redevelopment was established in 1961, based on these experiments. Projectof redevelopment in station districts and shopping areas in the principal'big
cities as Tokyo,Osaka and Kobe were carried out and, in the suburbs of Tokyo,

Osaka and Nagoya, mono-functional towns as "bedroom•towns" or residential
towns were built. These test projects served as models forother bedroom towns.

(c) A considerable number of industrial and commercial estates wereplanned and realized one after the other. These were two types. One included
estates as physical means for the cooperation ofsmall businesses, and the otherestates for reasonable landuse ofindustries. The first type consisted chiefly of
the same kind of industries and the ,second of different kinds of industries. Bothwere mutually related with each other, but they had distinct purposes. Especiallythe industrial estates for the cooperation of small businesses were some of theunique Japanese projects. They began in 1961 and are still built now. The
industrial estates aimed originally to realize the coexistence of industry andcommunity through physical projects and achieved this to some extent, but they

were apt to incline to whether economic side or physical side in Japan. Moreover, the projects of the second type lacked the management bodies of the estatesin most cases, another problem of the industrial estate.

(d) A multi-functional approach or interdisciplinary approach to urban andsuburban problems was gradually promoted in this period. One of the stimulations for this approach was the joint study of the team of the United Nations andJapan in the Hanshin (Osaka-Kobe) region in l960 and l962. This cooperation
stimulated not only the systems approach for urban and suburban problems,
but also it was helpfu1 to advance regional development in the metropolhan reglons.
In the lapse of several years in this period, multi-functional physical systems

for urban problems were developed where the macroscopic standpoint was given
priority in regional development and the urban and suburban problems were apt
to be overlooked, even if the systems approach was still insufficient.

@Regional Development in Anglo-American Countries in This Period (1961-1965)' '(1) The United Kingdom
After the War, regional development policie`s were established by the govern-

ment of the Labour Party and handed over to the Conservatives in 1951, andMINORU BEIKA

16

then taken over again by the Labour Party between 1964 and 1970. However,it
seems to the writer that these regional policies were revised rather according to

the changes in environment than according to the policy difference of the twopartles.

In 1964, the goyernment of the Labour Party reexamined the regional policies

and established in 1966 the lndustrial Development Act, which aimed at a morereasonable distribution of industries rather than to overcome the regional un-

employment which had been the principal problem before. Accordingly theAct
designated a greater numberofsmall areas as Development Areas, in place of theDevelopment Districts of the former Act. Because, in the middle of the 1960's,

industrial activities had grown in the United Kingdom, and yet the technology
gap between England and America brought the international competition, and sointernational aspect was needed more than national social aspect in the regional
development policies.

(2) The United States ofAmerica
In Japan, so-called knowledge-intensive industries or research and development industries had attached the interest of the public administration and the in-dustrial world since 1970. Prior to it, in the United States of America, industrial development policies in the principal metropolitan regions had begun to
be oriented to R & D around 1960, and then in 1965, the concept of science-basedindustries replaced that of the R & D industries. Of course, this development

was related to the space deyelopment projects of the Federai Government.
However, civilian industries also had been research-and-development orjented,

or information oriented. It was reiated to the problems of the technology gap
between the U.S.A. and the European countries.
The allied industries of the space development projects haye gradually begun

to contribute to the urban problems, since the Federal Government began todecrease the financial expenditure ofthe space development projects in the second
half of the 1960's. Just at that time, the heavy and chemicai industries were interested in the regional development policies of Japan.

VI. The Fifth Period (1966-1975) Reconsideration Era
Beginning with the year 1965, the Government felt the need to recgnsider its

national regional development plan, due to the discrepancy of the plan and theactual conditions. As the result, the new national •regional development plan
was established in 1969.

However, the continuous occurrence of the environmental problems required

REGIONAL DEVELOPMENT POLICIES OF JAPAN IN RECENT QUARTER 17
OF THE TWENTIETH CENTURYa more fundamental reconsideration for regional development, at the turning
point of EXPO'70 (l970).
Internationally, environmental pollution and urbanization, as the side effectsof the high economic growth over many years, were the focus problems in theindustrialized countries. There were more serious problems in Japan, since ourland was not only small and mountainous, but also our country had less experience in challenging the environmental and urban problems.

(1) Regional Development
The New National Regional Development Plan was made in 1969 by reconsidering the old plan. It aimed to rearrange the national landuse in order toovercome the regional problems of unbalance between excessive concentration andextremely low density of population, through a new national network of transportation. The principal characteristics of the plan are the following:(a) The new plan attached more importance to the problems of urbanization
than to the orientation for the development of heavy and chemical industries.
Therefore, the functions of the nerve center for decision making and informationand physical distribution in the metropolitan regions occupied the core place inthe regional development policies.

(b) The regional real living conditions were the main point in the policy
making, while the statistical regional economic income index had been the starting point of the old plan.

(c) The network of transportation and communication was set as the key
to overcome the problems of excessive concentration and extremely the low densityof population.

(d) As the coastal heavy and chemical industries had brought severer environmental pollution problems than the inland industries according to the oldplanning, the former types of industries were planned to be located in a country-

side districts on a larger scale, but with greater environment consciousness.
The so-called foot-loose industries, that is inland and urban types of industries,

were planned to be located in more remote districts from the central metropolitan'regions, by the improvement of locational conditions.

These changes in the national regional development policies mean, as forthe writer, that the problem-consciousness of urbanization and the standpoint of

the local community had more weight now in regional development than the,national landuse.
This view point seems to have been relatively neglected inJapan before.

In this period, several laws for industrial location and relocation were
established to promote the regional development. In urban districts, a new act

18 MINORU BEIKA
was legislated for industrial plants to relocate to suburban or countryside
districts in 1972. For that purpose, remoyal-promoted districts in the urban
districts, and induce-promoted districts in the rurai districts were specified res-pectively. In rural districts, a new act was legislated in 1971 so that new in-dustrial plants shou}d be built in agricultural districts for preventing thedecrease of their population. Since 1973, the new industrial plants have been
obliged to maintain a certain percentage of green tracts on their site and set up
facilities for maintaining a good environment.

These plans and their realization brought the new difficult problems of the

1970's. A new concept for regional deyelopment was published in 1971 under
the title "Nihon Rett6 Kaiz6ron" (Remodeling the Japanese Islands) by Prime
Minister Tanaka of the then cabinet. It intended to promote the new national
regional development plan, but it had literally reverse and undesired consequences by stimulating speculative land buying. At the time of the doilar shockcaused by President Nixon in the summer, 1971, unproper national financial
polic'ies also contributed to these consequences.

These policies had to be changed drastically not only because of the incre-

asingly severe environmental problems, but also because of the internationalenergy and natural resources Problems caused by the Fourth Middle East War
in October, 1973. The national regional development policies were now reexamined.

(2) Environmental Problems
Environmental problems have come to the surface in Japan since EXPO'70.
The Fundamental Law for Environmental Pollution Control was established in
1967, but at the end of 1970, when the Law was basically revised, became thestarting point for essential policies for environmental problems. The developmentof environmental problems and policies, traced back to the end of the War, isbriefly shown in the following:(a) For several years after the end of the War, the policies for environmental

pollution (chiefly air pollution) had been taken on the level of local public
administrations, since pollution was limited at that time,chiefly to thecentral

industrial districts. For example, prefectural and municipal ordinances werelegislated in the Metropolis of Tokyo (1949), in Osaka Prefecture (1950), in

Kanagawa Prefecture (1951), and then in some of the suburban cities in the
1950's.

(b) On the national level, laws for water pollution control were legislated in

1958. They were prompted by incidents in a certain river of Tokyo which seriously damaged the activities of the fishing industry. A law for air pollution also

REGIONAL DEVELOPMENT POLICIES OF JAPAN IN RECENT QUARTER 19
OF THE TWENTIETH CENTURY
was enforced in 1962, necessarily because of high industrial growth.

(c) The Fundamenta1 Law for Environmental Pollution Control was established in 1967. The Law defined the philosophy for preventing environmental
pollution, the responsibilities by the parties concerned, the criteria for pollution

control, expense bearing and conflict treatment. These activities of the govern-

ment were promoted by the expanding environmenta1 pollution not only incentral industrial districts but also in rural industrial districts.

(d) At the same time,'the United Nations proposed an international conference for global enyironmental pollution problems and the Secretary Generalpublished in 1969 a report on the human crisis caused by environmenta1 pollution.

The conference took place in June, 1972 a.nd attended by many countries. In
Japan, the Fundamenta1 Law for Environmenta1 Pollution Control was basicallyrevised in December 1970, at the extra session of the Diet. One of the mostimportant revised points was that "balance of the sound economic development
and the preservation ofhealthy environment for'human lives" was replaced by"priority of the preservation of healthy environment for human lives." Moreover,it provided that the expenses for preventing pollution should be borne by theindustrial firms responsible for pollution. It regulated the punishment for thecrime of health injury by environmenta1 pollution, and the responsibility for the

disposal of industrial wastes. These policies were promoted by several cases ofsevere pollution diseases such as the Minamata disease, the Itai-itai disease, andthe Yokkaichi asthma. The Agency of Environment was established by theGovernment in 1971. These problems ofenvironmental pollution are closely
related to industrial location and urban development.

(3) Industrial Location
In the 1970's, the problems of industrial location and industrial distribution

related to the national regional development concentrated on the problems ofindustrial structure, because of international consideration of industrial speciali-

zation, and internal consideration of environmenta1 problems.

In the 1950's, the policies of regionai development in the United States
were already much concerned with research and development industries or science-

based industries. Now, in Japan, these industries became an important subject
in development policies. They have been generally called "knowledge-intensive
industries" in Japan.

(a) "Knowledge-intensive industries" have been given importance in regional
development in the 1970's, while coasta1 heavy and chemical industries constituted the core of regionaj policjes in the 1960's. It js a strikjng contrast by
the changes of the inside and outside environment.

MINORU BEIKA

20

The committee in the Ministry of International Trade and Industry for theindustrial structure suggested in May, 1971 that "knowledge-intensive industries"

consisted of research and development, high-assembly, fashion and informationindustries,'and that income elasticity, productivity, natural environment, andwork environment were experimental criterions of judgement for the desired
industries in regional development.

The concept of the knowledge-intensive industries is not clear, but it seems
to suggest the way of the future industrial structure. It is at present an important problem, how to realize the reorganization from the.current industrial
structure to the future type.

(b) The way to realize the desired landuse in industrial location seems tobe the type of•industrial estate or industrial park as in American and European
countries. In the 1960's, industrial location in Japan also has often this type.

Some industrial estates promoted by IQcal governments were called industrial"parks" aiming at a good inside and outside environment. But the realization
has been difficult till now, because industrial parks are expensive to maintain, theyneed considerable space of green tracts of land, and the ownership of individual
industrial firms in estates is regarded as a obstacle for the management and con-trol. However, conditions have been changed by serious environmental pollution

problems. Maintaining a certain percentage of a green tracts of land is com-pulsory by law now during the high economic growth period. Severe environmental problems have obliged to individual firms to cooperate in order tomaintain good environment.

(4) Urban Development
The national policies of regional development had been more interested inland as a whole, than in urban development and the 1ocal community. It seemed
to be right, but brought some important problems, because Japan has had lessexperience in urban and community problems before this national planning. In

this period, urban and community problems were gradually giyen importance,
nationally and regionally.

In 1969, the Local Self-government Act (1947) was revised and the local go-

vernments were obliged to formulate their own basic visions and then to maketheir fundamental plans and action programs.
In 1968, the new city planning act also was established in place of the old act(1919). In the act, authority to formulate city planning was transfered from thecentral government to the local governments. In its execution, urban, suburban•
and surrounding areas were divided into three sections; the urban section, thenon-urbanizing section and thenon-designated section. The non-urbanizing sec-

REGIONAL DEVELOPMENT POLICIES OF JAPAN IN RECENT QUARTER 21
OF THE TWENTIETH CENTURY
tion means not to be newly urbanized for industrial and residential use for thetime being. It aims to prevent disorderly landuse.

This legislation and orientention was prompted by actual environment.
Realization of the regional development policies has caused many direct andindirect side effects and various urban problems; such as engine exhaust on
expressways, noise, various other environmental problems at airports, lack ofsunshine because of high buildings, etc.
This period is characterized by the fact that the local self-government bodies,

especially municipalities, began to challenge these problems actively. '(5) Current and Future Problems
The above-mentioned is chiefly limited to the history before the outbreakof the ,Fourth Middle East War. The environmental conditions have suddenly changed after October, 1973. Natural resources and energy have become thefocus of world problems. High economic growth seems to be replaced by low
growth. Under these conditions, the expenses to solve environmental pollution
problems have to be borne by industrial development. Moreover, national andlocal welfare policies must be given priority in regional development planning.

The regional development policies vvhich have been recQnsidered since thesecond half of the 1960's, have to be reexamined once more in middle of 1970's
owing to these environmental changes. These problems are to be studied in thenear future.

VII. Characteristics of Regional Development in Japan in Recent Quarterof the Twentieth Century

The above-mentioned progress in regional development, industrial location

and urban development in Japan in 'recent quarter of the twentieth century,compared with Anglo-American countries, can be summarized to the following
charaCteristics:(a) In the three-quarters of this century, the England and America wereconfronted with various urban problems in their industrial development for the

first time and had some experiences of a systems approach of these problems

and then were gradually compelled to challenge a wider range problems ofregional development since the World Depression, and again after the Second
World War, they had to solve new regional and urban problems owing totechnology innovation on both the national and local level. In contrast to them,Japan was confronted, first of all, with national problems to reconstruct the eco-nomic conditions for one hundred million population in the War-damaged land

22 MINORU BEIKA
after the War. Therefore, regiorral development problems were needed priority
over urban or local problems with few experience of a real integrated physicalsystems approach. As the result, planning techniques advanced considerably inregional development, but their realization was often hampered by less experi

ence in urban and local problems and lacked fu11 consideration for them. In
the last ten years, Japan has tried to solve the local and urban problems.

(b) Several new systems such as the planned multi-considered physicalsystem or multi-purpose and multi-functional physical system have been createdin process of regional and urban development in England and America in thiscentury. These new systems have been introduced and applied in Japan, throughrearrangement for the national conditions.

In some cases, some unique systems have been developed in Japan, basedon these foreign systems. However, they tended to become often mono-functjonalsystems, in spite of the original multi-purpose, and had less effects to regional or

urban problems. The cause is less experience in the past in challenging urban
and local community problems, not only on the level of public administration,
but also in the business world.

(c) In Japan, the planning technique to synthesize regional development
policies has considerably progressed through repetitive experiences in this quarterof the century, but the techniques of integration into action programs and theirrealization are not yet satisfactory due to less experience on the urban and local

levels. Since about 1955, econometric analysis and the related techniques havecontributed to regional development planning, especially comprehensive and integrated planning, but•the actual systems approach for the realization of theseplannings, including the grasp of real facts and the extraction of actual problems,

is not yet developed as much as the planning level.

(d) Recently, urban development and the local community have been paid
more attention in regional development policies. At least, these problems havebeen accepted in the regions around the major cities. Experiences in systems
approaches for these problems have been gradually developed.
(e) Development and redevelopment in cities and towns in the local districts
haye become important current problems, as for these several years experiencesin the central metropolitan regions have been acquired.

(f) Necessarily, the future industrial structure of Japan must be visualized
in relation to the changing policies of regional and urban development.

These new problems in regional development must be challenged now, inspite of the current seyere recession which set in last year.

NATIONAL INCOME AND EXPENDITURE AT FACTOR COST
IN JAPAN 1955-1970: A MACRO-ACCOUNTING' FOR GROWING ECONOMY
Nobuko NossE

I. Illtroduction
The rate of economic growth of the Japanese economy in 1955-1970 is extremely high, it is about 10 percent in the average and thus higher than at any

time in the past history of Japan and also higher than in any wustern country
for the corresponding years. How the economic forces worked together in theseyears is, thanks to the recent improvements made in Social Accounting, wellillustrated by the set of key-accounting figures, such as GDP, Inyestment. and

Personal Savings, etc. Here we intend to show a set of the key-accounting figures arranged in macro-accounts for every five-years, i.e., 1955, 1960, 1965 and1970. Some figures are calculated on a dual basis, i.e.,on the market price basis

and the factor cost basis in order to trace all sorts of transfers. And for thesake of inter-temporal comparison, all accounting figures are revalued to a nearbasis of the 1970 yen. Finally, we intend to compare some accounting ratios
derived from their key-accounting figures in some Western countries in the
1955-1970 period with the ratios in Japan for the corresponding years. Both
comParisons, the intertemporal and the inter-national, will give us an idea of the

aspects of the income and outlay of the household sector and of the general
government which is the real counterpart of the aspects of the company sector
with its very rapid accumulation in Japan during growing years.

ll. A Set of Macro•-Accounts for Comparing Purpose
Before analysing the economic picture of 1955-1970, we must first build up
a set of macro-accounts for depicting the circulating flow of the factor income
share created in the production sphere in the nation as a whole, its transformation

through distribution, redistribution by transfers, consumption in the successive

income appropriation sphere and savings and investment in the accumulation
sphere. The most ideal set of accounts for this purpose is, as we know,a fu11y
articulated and sectored three-accounts system. The present statistical data in thenationa1 accounting'field in Japan, however, makes it difficult to use fu11y such

24 NOBUKO NOSSE
a system ofaccounts. The Japanese National Accounts`'' on which we have torely as a main source of statistical materials in this paper provide only an articulated set of non-sectored macro-accounts with supporting detailed information
classified on a dual point of view, i.e., the point along the line of income categories and the point along the line of institutional categories. In these two types

ofclassification there is no consistency and their accounting items in each haveno correspondence. Because this limitation, our key-accounting figures in the

Production Account and the Income Account are classified under the income
categories such as wages, mixed income, etc., while the key-accounting figures in

our Income and Outlay Account and Saving and Investment Account are classified under the institutional categories such as personal consumption and company investment, etc. These accounting figures, therefore, not to be arranged in
the fu11y sectored three-accounts system, but only in a series of simpler tables

where the key-figures are tidely arranged but some of them having loose ends.

We must mention here farther two things. One concerns the Statistical
Discrepancy, the discrepancy between the figures calculated by the Output Method

and those by the Income Method. As our analysis intends to draw the pictureof the whole transaction flow from the income side, we deduct (or add) this itemfrom (or to) the figures of the fixed asset formation calculated by the Output

Method. The other concerns the valuation problems, far more important, butdifficult to treat. As our object is to analyse the structure of real resources cre-ated and of the allocation between final destinations the factor cost basis must'

preferably be used. The published National Accounts figures, however, havenever provide the figures for the expenditure items on the factor cost basis nor

the sectored indirect taxes. Thus in this paper we must introduce a device forseparating net indirect taxes`2' for every expenditure category in each sector.
After that the flows of expenditures are shown on du'al basis, i.e., at the market price and the factor cost respectively. Then a last snag has to be overcome.

Leaving the problem of insufficient information which becomes serious in theinternational comparison, the big snag comes from the value of money during theyears 1955-1970. There had been rises of prices and wages during these years.
The rise of the former was less than double and that of the latter was fourtimes. Also, there had been an about 8 times increase of national income
during 1955 and 1970 while national income in 1970 is 4-!i'- times of national. .2") Economic Planning Agency,AnnualReport on IVational Income Stattstics, 1972 edition. The 19551960 figures are estimated from the Revised Report on IVationat Income Statistics (1951-1967) byEcononomic Planning Agency. In this paper we call these reports as `National Accounts' as

an abbreviation. '(2) My estimation on sectoring indirect taxes has not allowed to calculate indirect taxes and subsidies separately yet, but only their nelted amounts, i.e., the indirect 'taxes minus subsidies,

NATIONAL INCOME AND EXPENDITURE AT FACTOR COST IN JAPAN 25
1955-1970: A MACRO-ACCOUNTING FOR GROWING ECONOMY

income in 1960 and 2t of that in 1965.`]' To overcome the snag in the way ofinter-temporal comparison, we decide to introduce an accounting ratio foradjustment, the ratio of national income in the base year divided by national in-come in the comparative year. According to this method originated by Prof.
Hicks:`' all Key-accounting figures in the 1955-1970 is to be multiplied bynational income•ratio, for instance, figures in 1955 must be multiplied by 8, as?h.,O,.Wn,,".b.O.Ve,,a.".d,gO.r,`,h,e.,fgg.U,re,,O,f,,i9.,O.,ihgy,m.u.s,i,,bfr.,:liuep,if/d.by4},theThis macro-accounts system measured on the dual basis is our tool forcomparison work and shall be used in the following sections.

M. Inter-Temporal Comparison of Key-Accounting Figures in
1955-1970
Following our device of the comparative three-accounts systems shown in theprevious section, first of all we are making a comparison for the 1955-1970
period. The figures of 1955, 1960 and 1965 in the tables are arranged by multiplying them with 8, 4'li', and 2t respectively in order to compare them with thoseof1970 and in this paper we call them as `figures arranged in 1970 yens'.

Table 1 shown below indicates the key-accounting figures in th Production Accounts in `1970 yens.'Labour Balance (Japan, 1955 and 1970){thousand)Self Employed and

Tota1

1955
1970

Employees

Family Workers

39,154 <100%)
52,042 (100%)

21,325 (54.5%)
18,490 (35.5%)

17,829 (45.5%)
33,540 (64.5%)

Table.1: National Output and its Factor lncome Shares in Japan
in 1970 yens

\H
1955

1960

1965

1970

Wages and Salaries

283

290

322

311

Mixed lncomes

2i1

153

135

113

Operating Surpius of
the Company Sector

68

125

IB

142

4t

91

42

Operating Surplus of theGeneral Government Sector

37

26 NOBUKO NOSSE
The table shows the factor•income shares of the Japanese net domestic
product for every five years. In the table a rise of the wage income is accompa-

nied by a big fall of the mixed income. The former increases during 1955-1970
by 28, while the latter drops by 98, a bigger change than for the former. The

contradictional movements of the two income shares are the result of theJapanese economic growth in those years and we find corresponding data insome labour statistics`S'where the increase of wage earners and the decrease of

independent producers emerge as shown below. On the other hand, the operating
surplus ofprofits of the company sector, after a temporal fall in 1965, records a

big rise and the surplus in 1970 is higher by 74 than that in 1955 while thesurplus of the general government sector shows a slight rise of 2-li' as a resultof the gradual expansion of its activity in 1955-1970.

Next, we must look how changes occured in the income shares during theseyears. Table 2, shown below, indicates the 'incomes received by individual per-sons or the household sector, companies or the company sector and central
and local governments and public undertakings or the general government sector. The figures in the Table 2 are before taxes and arranged in 1970 yens. As

for the household sector, incomes are classified into wage incomes, mixed in-comes, interest, dividends and rents. The former two have been shown in the
Table 1 and need no further explanation while the latter three, which I take alTable 2: Composition of National Income (before tax)in 1970 yens

\H
1955

1960

t965

t970
311

Wage lncome

283

290

322}

Mixed lncome

211

153

135

113

37

55

65t

65

37

,21

50

80

6Y

2}

3

lnterest, Dividends

and Rents
Undistributed Profit

in Company Sector
Net Public lncome23(3) The figures of the Japanese national income in 1955, 1960, 1965 and 1970 are \7,ll2.6 billion,\12,816.5 billion, \25,537.6 billion and \57,173,7 billion respectiyely. National Accounts, op.

ciL

We obtain these 8, 4:IF and 211- by dividing the figure of the national income of 1970 by thatof 1955, 1960 and of 1965.
(4) J. R. Hicks, The Social Framework, 4th ed. 1971, Chap. 19 and Appendix G.
(5) ' Source: Bureau of Statistics, Office of the Prime Minister, japan, 1955 and 1970 Population Cen-

stts ofJapan, Prompt Report, Vol. 2, Part 2, p. 66, p. 61 and p. 120 respectively.

NATIONAL INCOME AND EXPENDITURE AT FACTOR COST IN JAPAN 27
1955-1970: A MACRO-ACCOUNTING FOR GROWING ECONOMY

together into one `interest etc.' group, are new items. There are new income
categories too - companies' undistributed profits and public income which areresiduals of operation surpluses of them.

It will be seen that the income of`interest etc.' rose continuousely in theyears under review and in 1970 it recorded 28 higher than in 1955. Undistributed

profits and public incomes show some oscilation in the intermittent years andat the end year of 1970, the former recorded a considerable rise - a rise by 43compared with its 1955 level-and the latter show far less increase -a rise by
2-

ll- compared with its 1955 level. This situation shows that even after ` interest

etc.' payment, most profits originating in the production sphere, still have been

carried oyer to the income sphere.
Then we look at the redistribution in Table 3 below. Here we take all taxes
directly imposed, i.e., income tax, property tax, local taxes directly imposed, cor-poration tax, fees and contributions for social insurance to the general governmeng

into one `direct taxes'. Among this `direct taxes', those imposed on household,after falling in 1960, increase again, and in 1970, the end of the years underreview, they are higher by 12 than the taxes of 1955 while those imposed oncompanies are, after fluctuating in the intermittent years, higher by 30 than their

1955 level. The increase of corporation tax was bigger than the increase of theincome tax imposed on household. The resulting increase is shown in the riseof the government sector's receipts from 40-l} to 67.

Tab]e 3: Redistribution of National lncome

in 1970 yens

\H
1960

1955

MWa
ixg eeg ii.cSoaiLaeri::d interest, i:il-50 ==48io: l -44S=453il

229

1970

1965
322il' !-61 .==461

ilk1rr,,=.,,,

2oot )

Dividends & Rents

Transfer incomes O+29 ==29

O+261 -261

O+32=-32

O+30-30

Undistributed Company
37-]9-18
Jncome721-2gg-43

50-28t-21S

80-32-48

public lncome l-+ 4o=4o}6t+47}-53}

2t+58-60t

3+64-67

As a corollary of Table 2, we can make an Income and Outlay Account for
the Household Sector. Table 4 indicates that personal income expanded in 1965
but fell to 489 in 1970, and the income in 1970 was lower by 42 than that in1955. The transfer income from the general government sector recorded only aslim increase by 1, thus the Household Sector's receipts after the transfer in-28 NOBUKO NOSSE
come fell by 41. As for the outlay side, direct taxes in 1970 yens have been increasing after 1965 and the personal consumption in the 1970's haye been decreasing through the years.

Tabte 4. Income and Outlay Account tbr Personal Sector at Market Pricein 1970 yens

\H
1955

1960

1965

1970

531

498

523

489

29

26Y

32

30

56U

524

555

519

Direct Taxes

50

44t

61

62

Disposable lncome at Market Price

510

479g

494

457

Consumption at Market Price

"2

3Y6

4U7

363

Savings

68

84

86

95

Personal lncorne before tax

Transfer lncome

The fall ofpersonal consumption---notice here that this item is measured at
the market price because the indirect taxes have not been deducted yet - during

amounts to 79,and personal savings show a rise over the years. Here we show
the indirect taxes imposed on the personal consumption and all the other items.

The sectoring of the indirect taxes which have never been provided by the
National Accounts as mentioned above is now roughly done'"' and shown in
the Table 5 below. Based on this Table 5, we estimate the Personal Consumption, the household sector's consumption,at factor cost in 1970 yens as shown

below in Table 6 on Personal Income and Outlay Account at Factor Cost. As
the table shows, net indirect taxes imposed on personal consumption in 1970
yens decreased from 49 to 33 and there was afall by 16 in 1970 compared withthe level of personal consumption in 1955. And Personal Consumption at
Factor Cost in 1970 yens decreased by 63 in 1970. This is a tendency. Although
there was a temporal bulge in 1965 it was still smaller than the figure in 1955.

Sayings show the same amount as in the Table 4 need no further comment.
With the aid of Table 5, we consider the other macro-accounting figures atfactor Cost in Table 7. Table 7 indicates the National Income and Outlay Ac(6) I deTive the figures of each item based on the information of indirect taxes and subsidies imposed on all Japanese industry products in 1955, 1960, 1965 and 1970, all those given by the
lnput-Output TabSes for 1955, 1960, 1965 and 1970 and of indirect taxes shown in the tax statistics, central and local. About documentation of this, see my paper "Comparative Major Com-ponents of National lncome of Japan and the UK delineated by Hicksian Format,"Annual
Report on Economics and Business Administration, Vol. 25, No. ff, 1975.

FACTORNATIONAL INCOME AND EXPENDITURE
AT COST IN JAPAN

1955-1970: A MACRO-ACCOUNTING FORGROWING ECONOMY'fableTax by Transaction Categories

5: Sectoring Net lndirect

in 1970 yens

\H
1955

1960

1965

1970

49.3

45.6

40.3

33.2

N, i. t, on Govt. Consumption

2,3

5.1

32

3.2

N. i. L on Personal lnvestment Stock

O.4

O.4

O.I

O.05

N. i, L on Company lnvestment Stock

U.7

2.6

1.0

N. i. t. on Govt. Investment Stock

O.4

O,3

O.2

1.4

O.8

Ll

1.3

2.0

2.2

2.0

2.6

l.3

i.o

).3

l,2

2.5

l.3

1.4

1.5

60,4

59,O

22,5

45,5

N. i, t. on Personal Consumption.

N, i. L on Fixed Capitallnvestment by Persons
N. i. t. on Fixed Capitallnves{ment by Company

2,2

N. i. t. on Fixed Capitallnvest ment Govt.
N. i. t. on Export
1'otal <net indirect tax)

Note: N. i. t. in the tab)e denotes

Table 6: Income'net indirect

and Outlay Account t'or

tax' (indirect tax

minus subsidies).

Personal Sector at Factor

Cost
in 1970

yens\H
Personal incomes
Direct Taxes

1955

1960

1965

1970

560

524

555

519

50

1

"7

61

62

40t

33

lndirect Taxes (after Subsidies)

49

l
44T

Disposable lncome (at Factor Cost)

46l

435

453

424

Consumption (at Factor Cost)

393

352

367

330

Savings

68

84

86

94

count at factor cost in 1955-1970 in `1970 yens'. Public consumption in theyears shows a decrease and a fall in 1970 by 14 of its 1955 level. Thus, corres-

ponding to the decrease of personal consumption andof thg government collective consumption, there were aseries ofincreases in savings. And in 1970 personalsavings were higher by 27 than in 1955, company savings were higher by 30 than
iri 1955 and the general government savings were higher by 24'li- than in 1955.

When proceed in the same way for the other item of expenditure, we obtain thedomestic investment figures calculated on factor cost as shown in Table 8 below.

Figures have been adjusted for `statistical discrepancy' foreachyear,as menti-

29

NOBUKO NOSSE

30

Table 7.

lncome and Expenditure Accounts at Factor Cost
in 1970 yens

\H
1955

1960

}965

1970

]970-i955

CH

393

351

367

330

63

CG

69

57

63

55

H4

SH

68

84

86

95

27

.
SB

i7i

43

2iS

47}

30

SG

,oe

49t

43}

,41

24t

Note: C,S denote Consumption and Savings whi]e subscripls H, B, G denote Household

Sector, Company Sector and the General Government Sector respectively.

Table 8: Domestic lnvestment Account at Factor Cost

in 1970 yens
)955

1
l

I

ig6o

'

\H
1965

i970

1970-1955

IH

44.9

44,8

56.6

65.2

20.3

IB

106,9

155.5

88.3

67.2

137.9

Ig

53.5

75.6

79.6

57.6

4.1

+liH

35.9+9,O

42.4+2.4

55.i+1.1

64.6+O.6

28,7-8.4+liB
FB

53.0+ 14.2

l20.7+i7.2

95.0+ll.9

125.9+29.6

72.9+15,4".5+9.0

51.1+24.5

62.4+7,2

58.0-O.4

13.5-9.4

FH

FG

+liG

Note: [, H, B, ,F denote lnvestment, Household Sector, Company Sector, General
Government Sector respectively and subscript F, i denote fixed capita1 and inventry, i.e., IF means fixed capital investment.

oned in the previous section, and have been arranged in `1970 yens.' There is anenormous increase of tota1 domestic investiment an increase of 113 in 1970'
compared with the level of1955. Above all, a great rise, amounting to 88 in
Investment in the Company Sector, is most remarkable. The Company Sector
increased its fixed capita1 investment by 73 in the years under review which
is big too. The investments made by the Household Sector and the Government
Sector show a smooth increase even in 1965 when the company sector's investments fell.

In 1970 they show higher levels by 20 and 4 (in 1970 yens) respectiyely thantheir 1955 levels.

Thus the aspects of the Japanese economy which are derived from theseaccounts can be summarized as follows: i) A rising proportion of wages andoperating surpluses with a falling proportion of mixed income - seen in the

NATIONAL INCOME AND EXPENDITURE AT FACTOR COST IN JAPAN 31
1955-1970: A MACRO-ACCOUNTING FOR GROWING ECONOMY

Production Account -ii) A relatively small personal consumption and government consumption with a small incidence of taxation and transfer income payment -- seen in the Income and Outlay Account and the Sector Appropriation
Accounts - , high investment and corresponding high saving - seen in the Income and Outlay Aoeount and the Investment Account. They are so characteristicthat they need further analysis.

IV. International Comparison of the Macro-Accounting Figures of 1955-1970
We turn to the Western countries and intend to make a comparison with theJapanese economy by means of the macro-accounting approach.
We take up here a few Western OECD countries, i.e., the United States ofAmerica, The United Kingdom of England & Wales, West Germany, France andSweden for the same l955-1970. When we look at their national accounts we'notice that in these OECD countries the making ofmacro-accounts over 15 years
in a logical and consistent manner`"seems even less impossible in the intertemporal comparison than in our Japanese experience. We must content ourselves to make a series of main accounting ratios for comparison instead of
constructing a set of tables which would accomodate constituent key-accounting
figures like those in the previous section. Although series of accounting ratios

involve some inconveni'

ence which we shall see soon, we must usearatio

analysis as a substitute for a set of accounting figures. The accounting ratios

which we use in this section are calculated as follows: we make an'accounting
ratio in one country by dividing the key-accounting figure of 1970,the base year,. key-accounting figure ofthe comparative year,•say 1955. For example,
by thethe personal savings ratio in the U.S. in the years 1955-1970 is got by dividing
58,864 millionsby $15,831 millions., and the result is 3.7. We calculate the otheraccounting ratios, for instance, the Company Investment ratios of U.S., and by
the same token we can calculate all the other accounting ratios of these count-ries based on the OECD National Accounts.
These accounting ratios are internationally comparable and in this section
we must proceed with the ratio analysis of these accounting ratios.

A snag in the•international comparison still remains. TheOECDNational
Accounts don't give any information on sectoring indirect taxes and subsidies
nor on expenditures measured on the factor cost basis. Against this, the in(7) Our statistical sources used here are two yolumes of the OECD National Accounts, AlthoughOECD National Accounts provide fairly well standarized national accounting figures, there isno complete consistency between the two volumes. OECD, IVational Accounts of OECD Countries, 1950-1968 and 1960-1970.

32 NOBUKO NOSSE
formation on the imposition of indirect taxes in these countries is at present very
scarce,`8'so our ratio analysis is limited to the accounting figures at the market
price.

Despite this limitation our tables of the main accounting ratios shown
below provide a notion of the chracter ofthe Japanese economy in the 1955-1970
period in contrast to the other economies in the same years.

Table 9-1-9-4, shown below, indicates a series of main macro-accounting
ratios in the 1955-1970. When we look at the accounting ratios in Table 9-1, weTable 9-1: Ratios in Production AccountDepreciation

Countries

GDP ratio

Wage lncome ratio

Japan

8.3

8.8

U.S.A.

2.5

2.7

1.4

U.K.

2.6

2.7

2.8

W. Germany

3.8

4.3

5.5

France

4.8

5.2

5.0

Sweden

3.6

3.8

ratio

12.1

notice first that there is some correspondence between theGDP ratios and Wage

Income ratios - an economy with a high GDP ratio is accompanied by a highWage Income ratio, while an economy with a low GDP ratio is the highest andthe French ratio follows and both have high Wage Income ratios, while theGDP ratio of the U.S. and the U.K. are smaller and their Wage Income ratios
are also smaller. This is the common result ofa higher growth of the former. Germany and Sweden show medium GDP ratios and Wage Income ratios
according to their medium rates of growth. Against this pattern of Wage Income ratios, the corresponding Mixed Income rati6s are far more irregular;
they are smaller than the VVage Income ratios and the GDP ratios is Japan andFrance, where the GDP ratios are high, and in the U.S. where the GDP ratio islow. And they are bigger than those of the U.K. and Sweden where the GDP
ratios are low, that is to say, the rates of growth are low.

Next we look at 'the accounting ratios concerned with incomes and outlays
in Table 9-2 below.
Table 9-2: Ratios in Income AccountCountrles

Personal
Income ratioJapan
U.S.A.

Cornpany

DirectlndirectNational

Profit ratio

Tax ratio

Tax ratio

Income ratlo

7.4

17.2

11.0

6.8

8

2.7

1.3

3

2.9

2.4
2.6

U.K.

2.8

1

3.7

3.1

W. Germany

4

3.9

4.9

3.4

3.8

France

4.9

8.1

6.6

4.2

4.9

Sweden

3.6

IL

5.6

4.7

3.6

33
NATIONAL INCOME AND EXPENDITURE AT FACTOR COST IN JAPAN
1955-1970: A MACRO-ACCOUNTING FOR GROWING ECONOMY
Table 9-3: Ratios in Household Sector's lncome and Outlay AccountCountries

Direct Tax imposed on
Household Sector ratio

Transfer Income from
Government ratio

Japan

10.1

8.6

U.S.A.

3.6

4.7

U.K.

4.7

4.2

W. Germany

S.4

4.6

France

6.7

6.I

Sweden

6.9

6.2

At a glance the Japanese Personal Income ratios is the highest comparedwith the same ratios ofthe Western Countries. When we look more carefully, we
notice that the ratios ofthe Western countries except for Sweden, are higher
than their GDP ratios; and even the Swedish ratio is at least equal to her GDP
ratio, while the Japanese Personal Income ratio behaves quite contrary to thisand is lower than her GDP ratio. This is likely attributable to ahigher ratioof her other income categories such as the company sector's profit ratio under

the prosperous.expansion of business and a high Depreciation ratio, shown in

Table 9-1. Both emerged in the years during which Japan attained a highgrowth. From the same table 9-2 we see ratios concerned with the redistribution in these countries. Among the tax ratios we recognize that all the Direct Taxes ratios in the table are bigger than all theIndirect Taxes ratios.This

means that in these countries the proportions of direct taxes tend to rise morethan those of indirect taxes in the years under review. By comparison, the tax
ratios, both direct and indirect, those are the highest in Japan and the Swedish

ratios follow, while the U.S. ratios are the lowest. As for the Transfer Income
ratio in Table 9-3, it shows that the biggest is again the Japanese ratio. This may

cause a little confusion; a confusion which sometimes occures in applying theratio analysis. These ratios which actually stand against the picture derived fromthe international statistics on `cost of social security' need to be explained.
As the ILO information on this subject`"'suggests,the Japanese transfer income

from the government sector in 1955 was far more lower than in the countries

cited here and was then improving. The high ratio of the transfer income
which reflects the transfer income of 1955 was very low and it is improved
later that does not explain the greatness of the present amount, nor does it imply at all the relative greatness compared with the national income. Remembering

this we should make referrence to the national income ratio in each country in(8) About the U.K. we have awork done by Prof, Hicks. See J. R. Hicks, The Social FrameworK
op.cit. As for the U.S. before 1955 the estimates were provided by J. R. Hicks, A, G. Hart
and J. W. Ford in The Social Framework of the American Economy, 1955.

34 NOBUKO NOSSE
order to reckon the relative greatness of transfer incomes in the national

mcomesand then compare: The result is given in the table below. As Table A

shows,

despite its greatness, the Transfer Income ratio divided by the National

Incomein theratio in Japan is the least and the ratio itself is relatively the smallest

countries under review.

Table A: Ratios for Comparing Transfer Income and Taxation
Transfer Income ratio
National Income ratio

Direct Tax ratio
National Income ratio

Japan
U,S.A.

108

138

196

125

U.K.

162

142

W. Germany

121

129

France124

135

Sweden172

156

Countries

Under the same consideration, when we reexamine the Direct Tax ratio
which greatness we found in Table 9-2, the Japanese direct tax ratio is relatively

not high. As shown in the right column of the same Table A, the Japanese
ratio, obtained by dividing the Direct Tax ratio by the Japanese National Income

ratio, is average among the ratios in this column. This fact suggests that theJapanese economy of the 1955-1970 was confronted by a relatively `cheap government' and that there had been a relatively small redistribution by the hand of

the government.
We look then at the Consumption ratios of both, personal and government,
and the Saving ratios separately by sector. We recognize that in these countries(except for Sweden)thePersonal Consumptjon ratjos jn 1955-1970 are actuallysmaller than the Personal Income ratios of the same years. This phenomenon
likely corresponds to the general statement on the `Propencity to Consume' ina normal situation (the Swedish ratio is a bit difficult to understand. As the(9) According to the ILO's publication, the countries percentages of the cost of Social Security to

the GNP are as follows:
l95S-56

1966-67

Japan

5.6

8.2

u.s.

5.S

8,1

U,K.

10.0

l3,O

W. Germany

j5J

l7.9

France13.3

15,7

Sweden11.2

l9.1(The U.S.A.'s figures are those of 1954-55 and of 1965-66,)
Source: ILO, Cost oLf'Soc'iat Security, 1966-67, l972, pp. 326-27, 329-30.

NATIONAL INCOME AND EXPENDITURE AT FACTOR COST IN JAPAN 35
1955-1970: A MACRO-ACCOUNTING FOR GROWING ECONOMY

figures of her personal sayings have not been provided, it is difficult to find thereason.) The ratio of the Japanese Personal Consumption is the biggest among
the ratios shown in the same column in Table 9-4. But if we investigated it byconsidering her higher GNP ratio and her National Income ratio(shown in Table 9-2 respectively) and as I did before for the Transfer Income, the idea which we

got from its bigness would change also soon. For comparing the relative bignessof the ratio, when we divide the Personal Consumption ratio by NationaS Income ratio, it is recognizable that the Japanese Personal Consumption ratio isrelatively small, even smaller than in any other country in the Table. As for theGovernment Consumption ratio, where the Japanese ratio is the biggest amongin Table 9-4, we have to investigate it again underthelightofher GDP ratios
and the National Income ratios. When we consider this as before, it is understandable that the ratios of Sweden, the U.S., W. Germany, and of the U.K. are
relatively higher than the ratio of Japan and even in France where the Perso-

nal Consumption ratio is relatively low, the Government Consumption ratio
is relatively higher than the Japanese ratio. From these comparisons, which havebeen summarized in Table B, we may conclude that the Japan consumption ratios - both those of private individuals and the collective public - are relatively lower than those in Western countries and in spite oftheir bigness, the relative

increase, especially that of government consumption, is far smaller than in theWestern countries.
Table B: Ratios for Comparing Consumption in Japan and Some Advanced Countries

Personal Consumption Government Consumption Government Consumption

Countries ratio ratioGDPratio
ratio
National lncome ratioJapan
U.S.A.

National Income ratio

82.5

78.3

81.3

1oo.O

152,O

158.3

U.K.

92.3

103,8

103.8

W. Gerrnany

92.1

t18,4

ll8.4

France

85.7

93,8

91.8

Sweden

116.7

127,8

127.8

On the contrary, when we look at Saving ratios and Inyestment ratios on
the right hand side of Table 9-4 and Table 9-5, there are difference. Asis easily discernible, the Japanese Saving ratios of both household and business, and

her Domestic Investment ratios and Fixed Asset Formation ratios are higher thanthose ratios of the Western countries. If we make a further comparison in con-sidering their GDP ratios (shown in Table 9-l) and their National Income ratjos, the relative highness of the Japanese ratios is also most obvious, as Table
C below indicates clearly.

NOSSENOBUKO

36

Countries

lncome and Outlay Accountin NationaJ

Table 9-4: Ratios

Personal

Government Personal

Company

Government

Consumption

Consumption

SayingSavingSaving

ratio

ratio

ratio

ratio

ratio

Japan

6.6

6.5

11.0

21

LJ4.6

U.S.A.

2.4

3.8

3.7

O.8

3.9

U.K.

2.4

2.7

W. Germany

3.5

4.5

4.3

o

13

France

4.2

4.5

7.8

9.8

7

Sweden4.2

4.6

Table 9-5: Ratios

6.6

in Saving and lnvestrnent AccountNational

Domestic

Fixed Capita1

Saving ratio

lnvestment ratio

Snvestment ratioJapan
U.S.A.

13.6

13

14.6

IJ

2.1

2.3

U.K.

3.8

3.3

3.I

W. Germany

3.6

4.0

4.5

France

8

7.5

7.1

Sweden2.5

4Countries

for Comparing Sayings andTable C : Ratios

investment in Japan and Somelnvestment ratio

Fixed Investment ratio

Savings ratioGDP

GDP ratio

National Income

ratio

Countries

Advanced Countries

ratio

Japan

157

176

U.S.A.

84

92

U.K.

l26

l19

W. Germany

105

118

France156

i48

Sweden

111

170

70S
ig:

igg

V. Concluding Remarks
Our finding which we got in the previous two sections can be summarized
as follows: In the 1955-1970 period of rapid economic growth,there was a rela-

tively small Personal Consumption and an even smaller Public or Collective
Consumption a,nd a relatively small sized government. Under such aspects ofgrowth, it may be thought that the whole distribution from profit to labourmust have been quite small for all these years under review. In the Japanese
economy the working population had not been required to bear a considerable

NATIONAL INCOME AND EXPENDITURE AT FACTOR COST IN JAPAN 37
1955-1970: A MACRO-ACCOUNTING FOR GROWING ECONOMY

part ofthe costs oftheir state. They had pushed their earnings higher up, spent'less and saved more instead. Undoubtedly
their whole receipts and benefits
had been limited and were far smaller than those which were received in the
Welfare States of some Western countries to which we referred in the previous
section. The Japanese working population have behaved in the years from 1955
to 1970 as if they had had some thought of `SelfHelp' as their own philosophy.

From such a consideration some question arise: one concerns the relation
between growth and welfare and another concerns propensity to save.
As for the first, it can be restated as follows: Is the mechanism in a society of high economic growth antagonistic to the economy of a welfare state ornot? When we compare the Japanese experience with that of the Westerncountries, as we did in the previous section, one of the distinct features ofJapan was found to be her relatively `cheap government'. So this question arose.
But is this idea generally acceptable or not?

Then second, by through comparison, it becomes evident that the personal. very highly sustained, But how can we explain this high prosavings had been
pensity to save? During the years prices had gone up as the implicit deflator was
rising about 90 per cent, but the personal savings still increased. There might bevarious causes:confidence in the continuance of higher income, scarce liquid as-

sets which induce high savings and a strong intension to preparing for old age
or some emergency not covered by sufficient social insurance, etc. To analyse

this problem is obviously important and we intend to do it in the future. We
must, however, have plenty of information in detail on the Household Sector expenditure, on the taxation structure and on the distribution of income and capi-

ta1 by income classes, before we can solve the problem.

It may be added that the aspects of the Japanese economy in 1955-1970
according to our set of macro-accounts, indicate that Japan took an ultra-ration-

ai way when she set out in 1955, one year after the postwar period.

EFFICIENCY AND ACCEPTABILITY IN
OPTIMAL GROWTH PATH
Hikoji KATANO

I. Introduction

We have many theoretical examples of optimal growth approach for development planning of the developing country. It is theoretically natural that the

optimal growth approach concentrates its weight mainly on efficiency of thegrowth path. However, actually, there might be so many and so severe oppositions against the efficiency. High efficiency in the long-term perspective planning does necessarily induce sacrifices in increase of welfare level of the economy,

In a low level situation of welfare in the developing economy, there may be acertain limit to sacrifice the welfare level on a process of economic development.

For example, a maximum capital accumulation or a fu11 employment attainment
with minimum time horizon does necessarily cause a low growth rate of employment in the early stage of development. This sort of planning shall be intolerable

for a developing economy with the mass of unemployment. Problem in thispaper will be focUsed on a balance between efficiency in optimal growth and theacceptability for the economy.

II Model of Growing Economy
We consider a closed two-sector deyeloping economy with the mass of unem-

ployment, where sector 1 produces investment goods and sector 2 consumer
goods. In sector i, Xi units of i-th goods is produced by Ki units of capital
facilities and IVt units of labour: these production factors are combined in thenormal technological level.

(1) X, --= B, K,, i- 1,2(2) Ni=aiK,,i--1,2(3) ai <a2where Bi is output-capital ratio, and ai is labour-capital ratio. ai does also
stand for labour-intensity in i-th sector, and (3) means that the labour-intensity

in consumer goods sector is larger than in investment goods sector.
We suppose that demand foi each product is always equal to the supply.

40 HIKOJI KATANO(i) The produced investment goods are allocated to both sectors. (ii) The pro-

duced consumer goods are distributed to employment.

-et K,IO(4) X,--K,'+Kl,,(5) X, - R( N, +N, )ei-

where Ki stands for investment in i-th sector, and R for real wage rate.

We define an investment allocation ratio(to the investment goods sector)

as follows:K, .
(6) u=X,

Then we have(7) k,- uB, K,(s) k, -- (1-u)B, K,
where u does naturally move between O and 1.

(9) O$ u$1
Demand for labour (total employment) depends on the units of capital
facilities in both sectors.

(10) N(t)-- ai Ki (t)+a2 K2(t)On the other, supply of labour grows at a certain rate n.

(11) L(t)-L(o)ent
Here we assume that
(1 2) n< Bi •ln our consideration, labour supply is larger than demand fot labour at initialstage.

(13) IV(O) < L(O)
I[I. Full Employment Attainment in Minimum Time Horizon
As a basic strategy, we consider a problem of fu11 employment attainment
in minimum time horizon. For the convenience, we do not consider the growth
path after the fu11 employment attainment. Then our problem is to determine thetime path of investment allocation ratio u(t) that makes(14) Jl,T' dt
minimum, subject to the conditions. K,- uB,K,k, -(1- u)B, K,(15) OSuSl
L(t)) ai Ki (t) +a2 K2 (t) ; Ki (O), L(O) -= given

O$ tS T'*

PATH
IN OPTIMALGROWTHEFFICIENCYANDACCEPTABILITY
Hamiltonian of this problem is defined as(16) H, == -1+p,--K, + P, K2 •In order to find u(t) that satisfies the above problem, the following three conditions have to be filled.

(a) u(t) is to be chosen so as to make Hamiltonian H, maximum, subject
to the conditions (15).
(b) There are the auxiliary variables pi that satisfy the equations(i7-) k,=-g,H,i, b,--,aH.i(c) Transversality condition

Pi (T*) a2(i8) p,(T*)= ai
is to be satisfied.

Optimal time path of investment allocation ratio u*(t) is(ig) u"(t)-(6 for ,O.:{Sllilll ;,"*On the optimal path, investment concentrates to the investment goods sector at

the first stage and to the consumer goods sector at the second stage. And, atthe end of the second stage, fu11 employment is attained.

When u(t) moves 6n the optimal time path, T*, T*, Ki (T*) and K2 (T*)
are determined by the relations

Ki (T*) = K, (O)eBi t*
K, (T*) -- K, (O)+B, K, (O) eei r' (T*- Tt* )(20),(9, (T"- T')-- 1- a.,'
L(O) e"'* =- a2 K2 (O)+ a2 K, (O)ePi'*
Where (3) and (12) are the necessary conditions for the unique solution.

Now, let us consider the following numerical example:,(9, - O.2 B, -O.4
ai =O•3 a2 == 1.0
n - O. 03

K, (O)- 10 K, (O) -= 20
L(O) - 120
The optimal time path of investment allocation ratio is.*,,,=(6,,, ?,S-g.,g:gEggl•g3i,.,,,

41

42 HIKOJI KATANO
And the related time paths of respective yariables are shown in Table 1, that wecall "Basic Solution".

In this basic solution, investment concentrates to the investment goods sector

for the period(OStS 14.635). As we suppose, the investment goods sector hasless labour-intensity than the consumer goods sector. Then, during the period,

the employment grows at lower rate. Here we can not expect a rapid decreasein unemployment ratio. For the period(14.635S t$ 18.135), investment concentrates to the consumer goods sector. In this stage, the employment begins
to grow at higher rate, basing on the highly accumulated capital facilities in thepreceding stage. Only for 3.5 periods, 59.2% of unemployment ratio decreases
to 09o, and fu11 employment is attained.
On the first stage of growth, investment concentrates to the investment goods

sector. There is no increase in production of consumer goods. On the other
hand, employment is growing, even though at lower rate. Thus, the real wage
rate is decreasing.

The basic strategy, that the basic solution stands, guarantees the fu11 em-

ployment attainment in minimum time horizon. However, the economy has tobear (i) the low rate growth of employment and (ii) the decreasing real wage
rate on the first stage of growth. It should be quite doubtfu1 whether the basic

strategy is acceptable or not for the economy.

IV. Maximum Employment in A Certain Time Horizon
As described in section M, the basic strategy guarantees the maximum
efficiency in attaining the fu11 employment. But, at the same time, this strategy
sacrifices the welfare levels(in terms of employment level and real wage rate at

the first stage of economic development) at the maximum degree. The point tobe examined in this section is to show that the shorter planning time horizon
makes less sacrifices in the welfare levels. • ''' is to determine the time path
The problem that we consider in this section,of investment allocation ratio u(t) that makes(21) S,' (a, K, (t)+a2 K2 (t)) dt
maximum, subject to the conditions-, K,= uB,K,. =(1-u)B, K,
K,

EFFICIENCYAND ACCEPTABILITY IN OPTIMAL GROWTH PATH 43(22) O$uSl
L(t)>ai Ki (t),+a, K2 (•t) ; K, (O), L(O)-= given

O$ t:.S T- given ;TS T"
Hamiltonian of this problem is defined ase(23) H2=(ai Ki+a2 K2)+Pi
Ki +P2 K2/ that satisfies the above problem the following three
In order to find u(t•)
conditions have to be filled.

(a) u(t) is to be chosen so as to make Hamiltonian H, maximum, subject
to the conditions (22).
(b) There are the auxiliary variables pi that satisfy the equations(24) k,-g:,b,--gfi(c) Transversarity condition(25) P,(T) -O
is to be satisfied.

Optimal time path of investment allocation ratio u*(t) is(26) u"(t)==(6for O.;j;T.
where '

(27) i, (1--Z;'-)$T•
On the optimal path, inyestment concentrates to the investment goods sectorat
the first stage, and to the consumer goods sector at the second stage. And, atthe end of the second stage, the employment becomes the maximum level attainable witrin the given time horizon. This pattern of investment allocation (26) issimilar to the pattern of investment allocation in the basic strategy (19). Here

we have a certain relation between Tand T, ,(2s) T---T-=7;,T(1-Z:'-).
This means that the time period of the second stage has constant horizon forgiven output-capital ratio and labour-capital ratio. Therefore, the time periodof the first stage becomes shorter for the shorter planning time horizon T. This
makes less sacrifices in the welfare leyels on the first stage of growth.

When u(t) moves on the optimal time path, T, K,(T) and K2(T) are determined, together with p, (O) and p, (O), by the following relations

Ki (T) -- K, (O)efiir

K2 (T)= K2 (O) +ie, K, (O)ePi'(T-r)

44 HIKOJI KATANO(2g) -Sl +( Pi (O)+i2itl ) e-B'T === -a2T+p, (o)B2 a2 (T-TY -(ai +Bi (p2 (O)-a2T)) (T- T)'+ (-11itl + (Pi (O)+12:1 )e-BiT) -o-a2 T+ p2 (O)-O
where (3) and (12) are.the necessary conditions for the unique solution.

Now, let us consider the following three cases of numerical examples. We

use the same numerical values for Bi,ai, n, Ki(O) and L(O) as used of thebasic solution in section III. And we define the three cases as follows:

Case I ': T===15,Case II : T-=-10,
Case III : T= 5.
The optimal time paths of respective state variables in these respective cases areshown in Table 2 for Case I, Table 3 for Case II, and Table 4 for Case III.
Comparative illustrations of these cases and of the basic solution are shown by

Figures 1--- 4. .

Comparative analysis ot' these cases, basing on the basic solution, shows:(i) The optimal paths of respective state variables in the first stage are thesame as the optimal paths of the basic solution.
(ii) The optimal paths of respective state variables in the second stage be-come less effective as the time horizon in the first stage becomesshorter, because the accumulated capital facilities in the investment
goods sector at the end of the first stage are smaller and the rates ofcapita1 accumulation in the second stage become lower.
(iii) However, as the time horizon in the first stage becomes shorter, thesacrifices in the welfare levels become less and less, the time horizon

with low rate growth of employment becomes shorter, and the decrease
in real wage rate gets off with the small loss.

V.. Concentration of Investrnen"o the Consumer Goods Sector
The characteristics, that are described in section IV, can be held for thelimited time horizon of planning(30) 3. 5$ T$ 18. 135.
That is, the optimal growth for employment maximization can be scheduled only
for the above-mentioned tirne horizon. The upper limit shows, as explained in
section III, the attainment of fu11 employment. And the lower limit means that

EFFICIENCY AND ACCEPTABILITY IN OPTIMAL GROWTH PATH45
the optimal growth path can not be guaranteed for the time horizon that isshorter than the limit.

The final state of the optimal growth path is a tangent-point of the fo11owmg
curve and straight-line,`3') "2(T}/:,,K,2,2o).+,,&K,(T)[T-iog:'t`(oT)'],(32) IV( T)= a, K,(T)+a2 K2(T) •The locus of this point is to be shown by(33) K,(T)-K,(O)+(1--:t-i)i K,(T).
No growth path can reach on the straight-line (33) before A,T(1-'Zt') period;i.e., 3.5 periods. Thus we have no optimal growth path for(34) T$", (1+ -Z;'-) .
To attain the maximum employment for planning time horizon less thanGT, (1--Zt' ), the investment has to be concentrated' to the consumer goods sector,

that is more labour intensive sector. However, as mentioned above, this growth
path ,does not guarantee the optimality.

VI. Multi-Stage Optimal Growth Path
Considering the characteristics of the optimal growth paths mentioned in
section Iv. a plausible growth path, that has no severe sacrifices in welfare
Ievels, will be composed of the multiplication of optimal growth path withshort-term planning horizon.
Now, let us consider a multi-stage optimal growth path, in which each stage
is made up of 5 periods. The optimal time paths of respective state variables areshown in Table 5. And these are illustrated by Figure 5.
In this multi-stage optimal growth path, we can not expect the effective
caphal accumulation and employment over the long time horizon as guaranteedby the basic strategy. However, on the other hand, we may expect the increasein employment and real wage rate within the short time horizon. This may help
to secure against social unrest due to unfavourable reputation for planning thatis effective for long-term perspective but enforces severe sacrifices in welfare level

HIKOJI KATANO

46

in short-term horizon.

VII. A Related Problem
A similar problem, as discussed here, has been already solved. Consideringa lower limit of real wage rate, the optimal growth path has been modified. In
this modified optimal growth path, the real wage rate is to be decreased for the

first stage, and to be kept at constant level of the lower limit for some time.
Even though the real wage rate is to be recovered afterwards, the recovery can
not be expected in the short time horizon. We consider that this sort of solu-

tion Ncan not helpa developing economy, more or less, to protect from thesocial unrest due to the severe sacrifice in standard of living. For the security

against social unrest, the developing econmy needs an increase or recovery inreal wage rate within the short-term horizon. In this concern, we prefer themulti-stage optimal growth path mentioned above rather than the modified
optimal growth path just mentioned.
VIII. Concluding Remarks
In this paper, we have considered the multi-stage optimal growth path foravoiding the unfavourable reputation from the long-term perspective optimal
growth path. However, we have no criterion how to determine the time horizonof each stage of the multi-stage optimal growth path. The informations concern.
ed may be rather qualitative than quantitative. The time horizon of each stage

has to be determined by a limit that the developing economy can bear thesacrifices in welfare levels. And the limit depends on the actual situation thatthe developing economy has.
B

K(t)

mo

Basie Sotutioe

EL [

mo

too
ll

lil

o

s to

Figure I; Capital Aceumulationt

15

EFFICIENCYANDACCEPTABILITY INOPTIMALGROWTH
PATH

47

N(t)

2oo

R(t)
III

Labour Supply
t50

u

ll

Basic Solution

k

B

O.3
I

L

1oo

5

O.2

Basic

Solution

11

50

O.1
III

t

s

o

10

Figure 2:

IS

t

o

10

5

Labour SuppLy and Empteyment

Figure3:

15

Reat Wage Rate

80

70

Unemployment Ratio

L-N
L

60
7S

O.36

IU

R(t)

O.M
li

O.33

se

so

N(t)

oo

co
2U

t

.Si{'er

25

K(t}

80

Basic Selution

oo

co
20
t

o

Le

s

Figure4:15o5Figure S/

Unernptoyment Ratio`

10
Multi-stage

Optirnal

15

Growth Path

Table1: BasicA

Solution•oo

Employment

Capita1oLabourReal

SupplyWage

Unemployment Ratio

K,(t)

K,(t)

K (t)

N,(t)

N,(t)

N(t)

L(t)

R(t)

L-N

10.0

20.0

30.0

3.0

20.0

23.0

120.0

O.348

80.8

L

1

12.2

20.0

32.2

3.7

20.0

23.7

l23.7

O.338

80.9

2

14.9

20.0

34.9

4.5

20.0

24.5

127.4

O.327

80.8

3

18.2

20.0

38.2

5.5

20.0

25.5

131.3

O.314

80.6

4

22.3

20.0

42.3

6.7

20.0

26.7

135.3

O.3oo

80.3

5

27.2

20.0

47.2

8.2

20.0

28.2

139.4

O.284

79.8

6

33.2

20.0

53.2

10.0

20.0

30.0

143.7

O.267

79.1

7

40.6

20.0

60.6

12.2

20.0

32.2

148.0

O.248

'78.3

8

49.5

20.0

69.5

14.9

20.0

34.9

152.5

O.229

77.1

9

60.5

20.0

80.5

18.2

20.0

38.2

157.2

O.209

75.7

10

73.9

20.0

93.9

22.2

20.0

42.2

162.0

O.190

74.0

11

90.3

20.0

110.3

27.1

20.0

47.1

166.9

O.170

71.8

12

110.2

20.0

130.2

33.1

20.0

53.1

172.0

O.151

69.1

13

134.6

20.0

154.6

40.4

20.0

60.4

177.2

O.132

65.9

14

164.4

20.0

184.4

49.3

20.0

69.3

182.6

O.115

62.1

T* (14.635)

186.7

20.0

206.7

56.0

20.0

76.0

186.1

O.105

59.2

15

186.7

33.6

220.3

56.0

33.6

89.6

188.2

O.150

52.4

16

186.7

71.0

257.7

56.0

71.0

127.0

193.9

O.224

34.5

17

186.7

108.3

295.0

56.0

108.3

164.3

199.8

O.2"

17.8

18

186.7

145.6

332.3

56.0

145.6

201.6

205.9

O.289

2.1

T*(18.135)

186.7

150.7

337.4

56.0

150.7

206.7

2os.7

O.292

o.o

(%)

=
-T
o
=
x
L
E
o

Table : 2 :Case I

Employment

Capital

K,(t)

K,(t)

K(t)

N,(t)

N,(t)

N(t)

LabourReal

Supply

Wage

L(t)

R (t)

Unemployment
Ratio

L-N
L

(%)

m
T
-a
t-u
z
a
K
>
z
v
>
g

o

10.0

20.0

30.0

3.0

20.0

23.0

120.0

O.348

80.8

1

12.2

20.0

32.2

3.7

20.0

23.7

123.7

O.338

80.9

2

14.9

20.0

34.9

4.5

20.0

24.5

127.4

O.327

so.8

3

18.2

20.0

38.2

5.5

20.0

25.5

131.3

O.314

so.6

4

22.3

20.0

42.3

6.7

20.0

26.7

135.3

O.3oo

80.3

5

27.2

20.0

47.2

8.2

20.0

28.2

139.4

O.284

79.8

6

33.2

20.0

53.2

10.0

20.0

30.0

143.7

O.267

79.l

7

40.6

20.0

60.6

12.2

20.0

32.2

148.0

O.248

78.3

ag

8

49.5

20.0

69.5

14.9

20.0

34.9

152.5

O.229

77.1

ri

9

60.5

20.0

80.5

18.2

20.0

38.2

157.2

O.209

75.7

$

IO

73.9

20.0

93.9

22.2

20.0

42.2

162.0

O.1oo

74.0

11

90.3

20.0

110.3

27.1

20.0

47.1

166.9

O.170

7L8

r' (I L5)

99.7

20.0

119.7

29.9

20.0

49.9

169.4

O.160

70.5

12

99.7

24.0

123.7

29.9

24.0

53.9

l72.0

O.178

68.7

13

99.7

49.9

149.6

29.9

49.9

79.8

177.2

O.250

55.0

14

99.7

69.9

169.6

29.9

69.9

99.8

182.6

O.280

45.3

15(T)

99.7

89.8

189.5

29.9

89.8

119.7

188.2

O.3oo

36.4

>

:
7
o
T
:
K
>
v

o
pu
o
$
8
-

$

Table 3:8Case II

Employment

CapitalLabourReal

SupplyWage

Unemployment
Ratio

K,(t)

K,(t)

K(t)

N,(t)

N,(t)

N (t)

L(t)

R(t)

L-N

o

10.0

20.0

30.0

3.0

20.0

23.0

120.0

O.348

80.8

L

(%)
1

12.2

20.0

32.2

3.7

20.0

23.7

123.7

0.338

80.9

2

14.9

20.0

34.9

4.5

20.0

24.5

127.4

O.327

80.8

3

18.2

20.0

38.2

5.5

20.0

25.5

131.3

O.314

80.6

4

22.3

20.0

42.3

6.7

20.0

26.7

l35.3

O.3oo

80.3

5

27.2

20.0

47.2

8.2

20.0

28.2

139.4

O.284

79.8
79.1

6

33.2

20.0

53.2

10.0

20.0

30.0

143.7

O.267

r(6.5)

36.7

20.0

56.7

11.0

20.0

31.0

145.8

O.258

78.7

7

36.7

23.7

60.4

1LO

23.7

34.7

148.0

O.274

76.6

8

36.7

31.0

67.7

11.0

31.0

42.0

152.5

O.295

72.5

9

36.7

38.4

75.1

11.0

38.4

49.4

157.2

O.312

68.6

10(T)

36.7

45.7

82.4

11.0

4S.7

56.7

162.0

O.323

65.0

fi

8
5
"

g
Table 4: Case III

Employment

Capital
K,(t)

K,(t)

K(t)

o

10.0

20.0

30.0

LabourReal

SupplyWage

Unemployment
Ratio

N,(t)

N,(t)

N (t)

L(t)

R (t)

L-N

3.0

20.0

23.0

120.0

O.348

80.8

L

(%)
1

12.2

20.0

32.2

3.7

20.0

23,7

123.7

O.338

80.9

T(1.5)

13.5

20.0

33.5

4.1

20.0

24.1

125.5

O.332

80.8

2

13.5

21.4

34.9

4.1

21.4

25.5

127.4

O.337

80.0

3

13.5

24.1

37.6

4.1

24.1

28.2

131.3

O.340

78.5

4

13.5

26.8

39.3

4.1

26.8

30.9

135.3

O.346

77.2

5(T)

13.5

29.5

43.0

4.1

29.5

33.6

139.4

O.351

75.9

Table. 5 :Multi-Stage

Optimal Growth Path

K,(t)

K,(t)

Labour

Employment

Capha1
K (t)

N,(t)

N,(t)

N(t)

Supply

Real
W age

L(t)

R (t)

Unemployment
Ratio

L-N

tn

L

(%)
o

10.0

20.0

30.0

3.0

20.0

23.0

120.0

O.348

80.8

va
N
m
z
o
K
>
Z
v
>
g

1

12.2

20.0

32.2

3.7

20.0

23.7

123.7

O.338

80.9

ri(1.5)

13.5

20.0

33.5

4.1

20.0

24.1

l25.5

O.332

80.8

2

l3.5

21.4

34.9

4.1

21.4

25.5

127.4

O.337

so.e

3

I3.5

24.I

37.6

4.1

24.1

28.2

131.3

O.340

78.5

4

13.5

26.8

39.3

4.1

26.8

30.9

135.3

O.346

77.2

5

13.5

29.5

43.0

4.1

29.5

33.6

139.4

O.351

75.9

6

16.5

29.5

46.0

5.0

29.5

34.5

143.7

O.342

76.0

T,(6.5)

29.5

47.7

5.5

29.5

35.0

145.8

O.337

76.0

H>

7

182
182

31.3

49.5

5.5

31.3

36.8

148.0

O.340

75.1

8

18.2

35.0

53.2

5.5

35.0

40.5

152.5

O.346

73.4

E
:
-K
7
o
v:
K
ge

9

18.2

38.6

56.8

5.5

38.6

44.1

157.2

O.349

71.9

10

18.2

42.2

60.4

5.5

42.2

47.7

162.0

O.354

70.6

11

22.2

42.2

64.4

6.7

42.2

48.9

166.9

O.346

70.7

r3 (11.5)

24.6

42.2

66.8

7.4

42.2

49.6

169.4

O.341

70.7

12

24.6

".7

69.3

7.4

".7

52.1

172.0

O.3"

69.7

13

24.6

49.6

74.2

7.4

49.6

57.0

177.2

O.347

67.8

14

24.6

54.5

79.1

7.4

54.5

61.9

182.6

O.352

66.1

15

24.6

59.4

84.0

7.4

59.4

66.8

188.2

O.356

64.5

ag

2

2
fi

"
-

x

AN EQUITABLE DISTRIBUTION OF THE COSTS
AND BENEFITS OF ECONOMIC INTEGRATION
Yoshiaki NlsHIMUKAII

It is widely accepted that economic integration is a usefu1 means of accele-

rating the growth of developing countries. Many economic integration schemes.
however, are confronted with important difficulties. Among the many problems
obstructing developing countries''efforts for econornic integration, the greatestdifficulties arise in relation to the devising of policies that will bring about anequitable distribution of the costs and benefits of integration.

This problem is closely linked with that of the disparity of the levelof
economic development within the participating countries. It has been shown,both theoretically and empirically, that in the absence of special measures infavour of the less developed countries of a grouping, the benefus of economic
integration are likely to be concentrated in the more developed countries while a

disproportionate share of costs will be borne by the less developed ones.
Therefore, special measures are required to solve this problem and to makedeveloping countries promote their integration schemes. Recent UNCTAD reports`'' throw light upon this problem and give us some important suggestions.

The more fundamental problem, however, is to make clear what an equitable
distribution of the costs and benefits of economic integration is. If this problem

remains unsolved, the integration process will be unable to lead to progress.
An equitable distribution of the costs and benefus of economic integration

insolves-some important problems. In the first place, the notion of costs andbenefits varies from one countty to another. In the second place, the measurement of costs .and benefus for each participating country has the difficulties
inherent in this kind of estimate. ln the third place, it is not easy to define
precisely what is'meant by an "equhable" distribution of the costs and benefits(1) UNCTAD series Current Probletns ofEconomic Integration; Peter Robson, Ftscal Compensationand the Distribution ofBenefits in Economic Grouping ofDeveloping Countries (E. 71. II. D. 6),
J. MarioPonce and H. Brewster, .Agrictiltural and Industrial Co-operation among Developing
Countries(E. 72. II. D. 6), and Eduardo Lizano, The Dtstribution ofBeneLfits and Casts inIntegration among Developing Cottntries (E. 73. II. D. 12).

YOSHIAKI NISHIMUKAI

54

within an integration scheme. Lastly, despite these difficulties, some practicalmeasures must be sought to achieve a better distribution of costs and benefits
among the participating countries.
ll

The costs and benefits which economic integration schemes bring about forthe participant countries are well known through the arguments for integration

as a means of accelerating development. The benefits relate to greater economies of scale, greater specialization and division of labour, higher efficiency inindustry, reduced external vulnerability and increased bargaining power withthjrd countrjes.`2' The costs of integratjon relate to the losses caused by the trade

diyersion and what is known as the"polarization effect."(3' These benefus andcosts, however, have been considered with relation to the integration area as awhole. There have been few attempts made to estimate precisely how the benefits and costs of an integration scheme have been distributed among the participating countries."' In considering an equitable distribution of benefits and costs,

the emphasis must be placed on the consequences for each particular country
rather than the effects on the integrated area as a whole.

But the accurate determination of benefits and costs for each participant
country is accompanied by the difficulties connected with the actual notion of
benefits and costs and their assessment by each country. The notion of benefits
and cost is not a single notion applicable generally to all member countries ofan economic integration scheme. It depends on each country's economic characteristics and circumstances. For instance, the influence of the emigration ofworkers as a polarization effect may differ for a country with a serious unemployment problem and a country with fu11 employment. For the former,'emigrationof workers might alleviate its economic and social tension and would not meana cost, whereas for the latter the loss of manpower mjght entajl a disadvantage.

In addition, the objectives pursued by countries in participating in an economic integration scheme may be different, and this affects the notion of benefits
and costs. For example, if a member country's objective is to complete its infrastrucrture, the integration process would mean a significant cost or benefit, accord-

ing to whether it did or did not attract capita1 investment to finance work on the(2) UN, Trade Expansion and Economic Integration among Developing Countries (67. II. D. 20), Chap.

II, A.
(3) Peter Robson, op. cit., pp. 4-7.

(4) As example of global analyses, we can cite D. H. McClelland, The Central American Common
Market: Economic Policies, Economic Growth, and Choice for the Future, Praeger, 1972, Chap. 2
and Jeffrey B. Nugent, Economic Integration in Central America, Johns Hopkins, 1974, Chap• 3

AN EQUITABLE DISTRIBUTION OF THE COSTS AND BENEFITS 55
OF ECONOMIC INTEGRATION
infrastructure. However, for another country whose objective is to maximize its
rate of growth, this effect would depend on the extent to which a better infrastructure enables it to maximize its growth rate. Otherwise, it would lay stresson the development of such other activities as industries or agriculture.

It must be noted that the notion of benefits and costs varies not only fromone country to another but also in the course of time in a single country. At
the early stage of the integration process, a country might have a certain amountof idle capacity and would therefore be able to expand the production of somegoods without having appreciably to sacrifice the production of others. But as
this idle capacity becomes exhausted and the over-all supply becomes inelastic,
the position changes. Then, the alternative use of resources assumes far greater

importance and the benefits and costs of decision also become more significant.
It is therefore possible for the benefits and costs of the process to change in asingle country over a period of time with the changes in the circumstances of its

domestic economy.
Besides the different criteria mentioned above, the problem of the distribution of the benefits and costs of integration involves other more complex issues.

The magnitude of benefits and costs can be affected by many factors among
which the nature of the integration scheme and the economic policy adopted by
the participant countries have great importance. As regards the integration
scheme, the effect of the external common tariff on all the member countries, forinstance, is not precisely the same, because national tariffs are not usually alike

before the integration process begins and custom duties have to be changed toan extent differing in•each country in order to establish a common external tariff.

This means that the establishment of a common external tariff entails costs foreach country differing with the tariff in force in each country before integration.

As regards the economic policy, some policy measures applied in member
countries can give rise to additional costs and can also determine how they are
distributed among the member countries. This applies to inflationary fiscal andmonetary policies, fixing the price of production factors or particular goods andthe inadequate treatment of foreign investment and rates of exchange. Suchmeasures can have an appreciable effect on the size of the benefits and costs ofintegration and the way in which they are distributed among member countries.

m
Despite the difficulties described above, some attempts have been made tomeasure the benefits and costs of economic integration and their distribution

among the member countries. Although they are partial approaches and have

YOSHIAKI NISHIMUKAI

56

not produced the hoped for results, it is usefu1 to reyiew them briefly according
to their criteria of measurement.(S)In the first place, some attempts have been focused on the effect on thenational income and the yolume of employment. A.J. Brown believes that account must be taken of both increases of income of a country A resulting fromthe new actiyities established there because of the protective external tariff, andthe benefits derived by country B from the increase of its exports to country A.
becauseof the increase of the latter's incomef6' This approach has the follow-,ing two important limitations, as Brown himself pointed out: (1) this model as-

sumes an over-all elastic supply in both country A and country B, so that bothcountries can increase production without having to decrease production of any
product, and(2) an emphasis is placed on the short-term benefits, without consideration of the long-term benefits, especially those related to the polarization effect,

which may greatly influence the results of the distribution of benefits and costs.

D. Segal adopted a different approach from that of Brown.`"He attempts tomeasure the benefits and costs of ,integratibn in terms of the increase in thevalue added in each country that results from the intra-regional trade expansion.

Moreover, as he assumes that the opportunity cost of the factors used in the
production of the gQods traded in the integrated area is zero, or very close tozpro, the result is that the benefits derived by each member country are in direct

relation to the volume of employment created as a result of the increase of intra-

regional trade. His approach also raises some serious problems:(1) if theassumption on the opportunity costs of factors is abandoned, then not only
will the benefits of intra-regional trade be less, but it will be very difficult tomeasure them, since there must be an estimate of the loss of value added dueto the displacement of the factors of production, and (2) since the only goal
established in this model is to optimize the distribution of the increase in value

added resulting from integration, the model does not enable member countries to modify their objective in the course of time.

In the second place, some attempts have been made to measure the benefits
and costs in terms of the intra-regional trade. The method employed by D. P.
Ghai`8' is akin to the one which has been widely applied to the problem of as-

sessing the benefits and costs of, integration in developed countries and in(5) For a detail, see Y. Nishimukai "Keizai-T6g6-Rieki-no-Keisoku-o-meguru-Shomondai (Problems of the Measurement of Benefits and Costs of Economic Integration)," Kokumin-KeizaiZasshi, Vol. 123, No. 5, May 1971 and Eduardo Lizano, op. cit,, Anpex II.
(6) A. J. Brown, "Customs Union versus Economic Separatism in Deyeloping Countries (PartII),"
Yorkshire Bulletin of Economic and Social Research, Vol. 13, No. 2, November 1961.

(7) David Segal, "On Making Customs Union Fair: An East African Example," Yale Economic
Essays, Vol. 10, No. 2. Fall 1970.

AN EQUITABLE DISTRIBUTION OF THE COSTS AND BENEFITS S7
OF ECONOMIC INTEGRATION
volves employing margins of protection as an indicator of the;benefits andcosts. Specially, the benefits are indicated by each country's categories of intra-regional exports weighted by the relevant nominal degree of protection, while

the costs are measured by each country's intra-regional imports similarly
weighted.

This approach also raises certain serious problems, as A. Hazlewood, R.
R. Wood and others pointed outi9' The main criticisms that have been made ofthis model are the fo11owing:(1) A substantial portion of the intra-regional trade is independent on
the tariff preference. Therefore this trade must be distingished from other intra-

regional trade.

(2) The costs involved for one member country in importing from anothercorrespond not to the value of the imports, but'to the difference between theworld price and the internal price prevailing in the integrated area, multiplied by

the increase in the Volume of intra-regional imports.

(3) In view of the impact of trade on the rate -of economic growth, the mam
issue in the measurement of the benefits and costs of integration is the value
added content of intra-regional trade rather than the absolute value of such trade.
In other words, a deficit in absolute terms in intra-regional trade might in theseterms be more than compensated for by a higher value added content of intraregional exports compared to intra-regional imports.

(4) A country which can obtain goods at a lower price by trade creation
effect may suffer costs, because it must transfer the factors of production anduse them for producing other items. Thus there must be an estimate of the costsof the transfer and of any possible difference in productivity between the old
activity and the new one. Therefore it is impossible to determine the benefits
and costs of intra-regional trade by analysing only the prices of intra-regional
lmports.

(5) The intra-regional trade approach does not take into account other important aspects, such as the fact that some activities that could have been locatedin the country if there had been no integration scheme, can no longer be
establis,hed because of the opportunity of importing them from other member(8) D. P. Ghai, "Territorial Distribution of the Benefits and Costs of the East African Common
Market," Etzst African Economic Review, June 1964, reprinted in Colin Leys and Peter Robson(ed.), Federation in East Africa : Oppartttnities and Problems, 1965.

(9) A. Hazlewood, "The East African Common Market: Importance and Effects," Bulletin of the
Oxfont University Institute ofEconomics and Statistics (B. O. U. I.ES.)Vol. 28, No.1, February

1966, R. N. Wood, "The East African Common Market: A Reassessment",B. O. U.LE. S.,
Vol. 28, No. 4, November 1966, A. Hazlewood and D. P. Ghai, "The East African Common
Market: Importance and Effects, A Comment,"B. O. U.LE. S.,Vol. 29, No. 3,August 1967.

YOSHIAKI NISHIMUKAI

58

countrles.

In the third place, there are some attempts which determine the benefits
and costs'of integration that a country obtains in terms of specific developments, particularly in industrial sectors, which are directly or indirectly re-lated to the operation of the scheme. W. T. Newlyn's analysis approaches the
problem by taking the actual situation of the industrial sector of a country andcomparing it with a hypothetical situation which would have been obtained if thatcountry had not participiated in the integration scheme.`'O) In making this com-

parison, Newlyn considers the following four elements, leaving aside spill overeffects :(A) the industries established in country Kwhich are exporting to country T,
and that could have been establjshed in T if there had not been free trade between K and T (shiftable industries):(B) the industries established in K which depend on its exports to T, andwould not exits if there were no integration(common-market-based industries inK);(C) the industries' established in T which depend on its exports to K, which
also would not exist if there were no integration (commorsmarket-based industries
in T);(D) the exports of industrial products from Tto K which would not exist if
there were no common market. Newlyn•concludes that the overall gain to T(Gt)would be equivalent to: Gt==A-C-X(B+A)-D, where X is the spill overratio, that is, the percentage growth of the income of T in relation to the increasein production in country K resultjng from the common market.
An important characteristic of this model is the incorporation of the conceptof shiftable industries. Assuming that products whithin an industryare homogeneous, and that external economies of industrial concentration in country K
can be offset by country T's tariff which is no higher than that of the existing

common market, shiftable industries at present established in Karea identified
by comparing the annual average value of output per plant with the value ofexports from K to T. Whenever the average value of output is less than thevalue of exports, this industry is selected as a shiftable indusSry, and the value

added'in this industry causes for T a product increase under protection.
Various criticisms have been made of this approach, especially by Hazlewood and P. Robson.`'''The main criticisms are the following:(1) The possibjljty ofestablishing an industry does not mean that it will beestablished in fact, because the size of the market is necessary but not sufficient(10) W. T. Newlyn,"Gains and Losses in the East African Common Market," Yorkshire Bulletin of
Economics and Social Research, Vol. 17, No. 2, November 1965.

AN EQUITABLE DISTRIBUTION OF THE COSTS AND BENEFITS 59
OF ECONOMIC INTEGRATION
condition. Thus, country T leaving the common market is not sure of being able
to obtain rapidly the shiftable industries;(2) The assumption that the output of an industry is homogenous isdoubtfu1. In fact, the same industrial category includes a number of establish-

ments which produce different goods;(3) The industri'es could each have plants with an output smaller than themarket size, as well as plants with a large'r output, but in some industries theaverage output could be smaller and in the others larger than the market size.
The former would therefore be classified as shiftable and the latter as nonshift-able, although in reality there was no significant difference between the two
industry groups in the relevant respects;(4) The technical possibility of producing a merchandise on a smaller scalet'

production does not imply that it is economical to do so. Technically shiftableindustries can only be viable in country T in the following cases: (i) where thetechnically shiftable industries of K need the fu11 protection of the tariff but

T's industries can produce as efficiently as K's (even though at a higher costthan imports from the •rest of the world) ; (ii) where the technically shiftableindustries ofK do not need the full protection of the tariff, and where any higher

cost of production in T still leaves the local price below that ofcomparable
produets imported from the rest of the world. In other words, except where T
can produce at the same cost as K, only K's industry which is both shiftable
and not fu11y dependent on the tariff would be viable in T;(5) The value added by the industries shifted awayLfrom K would notnecessarily lead to an equivalent increase in the nalional income ofZ because
the factors of production that would be used i'n the shifted industries carry acertain opportunity cost. Only where 1' had all the factors of production at thesame costs as those prevailing in K, could it be considered that the increase in

the value added by the shifted industries would correspond to the increase in
the national income, but this situation is highly unlikely.

In contrast with Newlyn's approach which compares the hypothetical industrial development if there had been no integration with the industria] situation
where integration exists, D. M. Schydlowsky`i2'tries to estimate the benefits and(11) A. Haz;ewood, "The `Shiftability' of Industry and the Measurement of Gains and Losses inin the East African Common Market," B.O. U.LE.S., Vol. 28, No. 2, May 1966, W.T.Newlyn,"The Shiftability of Industry arid the Measurement of Gains and Losses in the East African

Comrnon Market: A Reply," B, O. U,LE.S., Vol. 28,No. 4,November 1966, Peter Robson,"The' Shiftability of Industry and the Measurement of 6ains and Losses in the East African

Common Market: Some Further Considerations," B. O. U.LES., Vol. 30, No. 2, May 1968.
(12) Daniel M. Schydlowsky,"Allocating Integration Industries in the Andeart Group," Journal of

Common Market Studies, Vol. IX, No. 4, June 1971.

60 YOSHIAKI NISHIMUKAI
costs of each of a set of integration industries which will be newly establishedin the integrated area, assigning a specja} yajue to the production factors usedin the integration industries. He then tries to determine the country in which
each of the integration industries must be located to ensure that the benefits andcosts estimated in terms of foreign exchange saved and / or earned are satisfactorily distributed. This modet,however, is a partial one because it ca}culates
the benefits and costf 'of only integration industries decided a priori. and neglects the consequences of the allocation of other industries.

rv
Even if the difficulties in the measurement of benefits and costs can beovercome, a still remaining problem might be what is to be understood by anequitable distribution of benefits and costs. All recent agreements for econo-

mic integration among developing'countries give much emphasis to equity inthe integration process. But rrone of these agreements defines is what meant byequlty.

The Cartagena Agreement, for instance, states that the objectives of theAgreement are "to promote the balanced and harmonic development of theme'mber countries, to accelerate their growth through economic integratiOn ---"

(art. 1) and continues "the balanced and harmonic developments should lead toan equitable distribution of benefits derived from integration among the member
countrjes, so as to reduce the existing difference among them"(art.2). But it is

not crear whether the drafters of the Agreement' had in mind narrowing theabsolute or the ,rejatiye gap.

It is not easy to define precisely what is meant by an equitable distributionof benefits and costs within an integration scheme. Clearly it is inequitable thata member country is not as well off inside the integration scheme as it would
be if it were to refrain from participating. But it is virtually impossible to com-pare how the country would have developed in the absence of the integration
with its actual progress. This would involve not only assessing the forces which
emerge as a result of the integration and their quantitative importance, but also
the alternative paths and the alternative opportunity for the country outside theintegration. Even if economic analysis were able to provide an adequate answer
to this comparison and to proye the inequity, it would provide no guide to theconcept of equity.

There still remains a broad range of possible definitions of an equitable
distribution of benefits and costs, that is, from concentration of all benefits in

one member country to more or less equal shares among all member countries.

AN EQUITABLE DISTRIBUTION OF THE COSTS AND BENEFITS 61
OF ECONOMIC INTEGRATIONThe case of all benefits being concentrated in one member country may be rejected as inequitable if relative welfare is an element in the welfare function of themember countries. Several special cases may appear to have particular appeal:
equal absolute benefits, equal proportional benefits to population, gross national

product and per capita income and so on. However, as D. Morawetz insists,"while each of these possibilities may be defended pseudoscientifically as the-`right' definition of equitable benefit distribution, the conclusion is the sameas that which emerged from the attempt to develop a scientific basis for the
progressive income tax: the decision as to which benefit distribution is `the mostequitable' ultimately rests not on logical argument but on value judgement. "`i"

However, as the base of value judgement, it is important for the member
countries to recognize the distinction of two aspects of equity. P Robson makes

a distinction "between the minimum requirement of equity in an integration
scheme, which is a matter which raises primarily economic consideration, andthe promotion of balance, which may be regarded as a political objective."`'`'
If the operation of market forces in an integration scheme would render the
position of a member country less satisfactory than it would be outside, equation

measures may be required to bring the partner at least up to the level it could
reach in the most favourable alternative situation. If this requirement is notconceded by its partners, the country concerned would not,`on economic grounds,
join, or if it were already a member, it would not indefinitely remain so. In otherwords, the concept of equity relates to,the minimum net benefits (benefits
minus costs) which each country needs if it is to participate or remain in an
integration scheme.

After the minimum requirements of each member country are satisfied, there
remains the question of how any remaining net benefits should be distributed
among the member countries. This raises a question of balance. The concept ofbalance, therefore, must be thought of, not in terms of such an objective crite-

rion as the concept of equity, but in terms of what is acceptable to the member
countries, and this will be arrived at by political bargaining. It is possible toconceive various principles of balance, according to which the member countries
might be preparedto distribute the remaining net benefits. For instance, it might

be regarded as equitable that the net benefits should be distributed among themembers, equally or in proportion to their national income of their population.

Although the adoption of any of them would not necessarily imply a re(13) David Morawetz, The Andean Group: A Case Study in Economic Integration among Developing
Countries, MIT Press, 1974, p. 73.
(14) Peter Robson, Fiscal Compensation and the Distribution of Benefits in Economic Groupings ofDeveloping Countries, 1971, p.6.

62

YOSHIAKI NISHIMUKAI

duction in disparities among the member countries, they are consistent with thebasic criterionof equity. Alternatively, principles of balance might be defined interms of the roduction of intra-regional disparities. For instance, the'principleof balance might be considered in terms of equalizing the growth rates of themembers, or in terms of narrowing the gap between the relatively less developed
countries and relatively more developed ones.
This approach which considers an equitable distribution not as only a single
concept but as one which has both conceptual and operative aspects, can be usefu1
to promote integration schemes. The first point is that it is relatively easy todetermine the minimum requirement of equity for each country, since it is themore manageable question to ask what benefits and costs would be involved forthe members of the integration if it were to be broken up, on comparative
static assumptions. To arrive at an answer to this question it is necessary totake the actual situation in the integration as it is now and to compare it with ahypothetical alternative position which differs from it in the existence of separate natiorial markets. This comparison, however, is not so difficult as comparing the actual situation with a hypothetical position resulting from not belonging to the integration in the past.

The second point is that although the principles of balance can not bethought of in terms of an objective criterion, it is not difficult for the member

countries to agree on a principle of balance, because the minimum requirementof equity would be ensured by the conceptual aspects of equity. With thisapproach, a relatively less developed country, for instance, would be able toagree to participate or remain in an integration scheme even if no special measures

were taken to narrow the gap separating it from the other countries, provided
that such participation enabled it to grow at a rate faster than it would attain if

it were not a member of the integration.

JAPANESE BUSINESS ABROAD: PAST,PRESENT AND FUTURE
Hideki YosHIHARA
I. New Strategic Problems of Japanese Firms
Today the advanced industrial nationsare said to be underdoing a greatchange, which is discussed.from various points ofview using vat'ious terminologies such as the change from civilized to post-civilized society, from industrial
to post-industrial society, or frorn the age of manufacturing industry to that ofknowledge industry.`i'Japanese firms, in this changing situation, are being forced

to face new business problems in addition to old ones which are more or lessfamiliar to them. Among the new business problems the following four seem tobe predominantly important:(1) how to maintain the growth of firms in the domestic market by diversi-

fying their business activities '(2) how to realize the growth of firms in the foreign market through carrying out international business activities(3) how to cope with the new social and political environment which ischaracterlized by such factors as industrial pollution, consumers'
movements and general anti-business attitudes(4) how to deal with the energy crisis and the shortages of various raw

materials
These new business problems are not problems of an internal procedureand its working of the firrn, but are commonly concerned with either altering theexisting relationship between the firm and its environment or setting up a new

relationship between them. Thus, they are what Dr.H. Igor Ansoff has called
the "strategic problems" of the firm.`2'

Considering the nature and the tren'd of recent changes in the environmentof Japanese firms, the four strategic problems mentioned above are anticipatedto become of central concern to Japanese firms. And the international business(1) Kenneth E. Boulding, The Meaning ofthe Twentieth Century: The Great Transition, Harper& Row, 1964.
Peter F. Drucker, The Age of Discontinuity, Harper & Row, 1969.
(2) H. Igor Ansoff, Corporate Strategy, McGraw-Hill, 1965.

64 HIDEKI YOSHIHARA
problem which is treated in the present paper is an impertant component of these

new strategic problems of Japanese firms.

ll. Features of Japanese Foreign Direct Investment
With the exception of these twenty years, the international busmess activities

of Japanese firms, especially Japanese manufacturing firms, had been mostly
restricted to the export of their products to foreign countries. For nearly one

hundred years since the beginning of the Meiji era, Japanese firms had been
putting in consistently all their efforts to expand their exports, in order to growbeyond the narrow limits of their domestic market.
In the latter half of the 1960's, however, a great change took place in theinternational economic environment of Japanese firms. The balance of trade
which had been mostly unfavorable for almost one hundred years turned to befavorable since 1965. The amountofexcess of exports over imports has showna rapid increase since then. On August 15, 1971, the Japanese economy was
hard hit by President Nixon's Declaration of his new economic policy. And it
has presently become apparent that the international economic environment has
undergone a drastic change. The emerging new environment has entirely novel
features such as the accumulation of ample amount of international reserves,
revaluation and then fioatation of the yen, and the shift of emphasis of theJapanese Government's trade policy from the export promoti'on to the importpromotlon.
With the emergence of a new international economic environment, foreign
direct investment has acquired a great importance in the overall international

business strategy of Japanese firms. Operation of overseas subsidiaries is
considered by many Japanese firms as reinforcement of or even substitution for
their traditional export activities.

As a matter of fact, many Japanese firms were extensively engaged in foreign

operations even before the Second World War. There is an estimation whichshows that the average annual amount of Japanese foreign direct investment
during the period of 1934-36 evaluated at the price level of 1955 reached 178
billion yen Or 500 million dollars.`3' Most ofthe investment, however, was madein those areas and countries which were more or less under the control ofJapanese political power like the Korean Penninsula, Taiwan, and the ChineseContinent. Thjs prewar Japanese foreign direct investment died out completely

with the end of the War.
(3) Tsitsh6sangy6-sh6 (the Ministry of International Trade and Industry), Keizai-kybryoku no
GenJ'o' to Mondui-ten (White Paper on Economic Cooperation), 1958 edition, pp. 113-114.

JAPANESE BUSINESS ABROAD: PAST, PRESENT AND FUTURE65
Postwar Japanese foreign direct investment was first made in 1951. Next, let

us attempt to shed light on some of the important features found in its development over nearly twenty years up to the recent time.")The stock, that is, the accumulated amount of Japanese foreign direct
investment at the end of 1972 has reached 6,773 million dollars.`S' In terms of
the size of stock of foreign direct investment, Japan ranks fifth after U.S.A.,

U.K., West Germany and France. The ratio of the stock of foreign ,direct
investment to GNP is only 2.3% in the case of Japan and smallest among thefive major industrial nations.
As for the rate of increase of investment, however, Japan stands first among
these five countries. The average annual rate of increase over the years 1967-72
is 36.0% in the case of Japanese foreign direct investment, and it by far exceeds

9.6% of the U.S.A. and 7.8% of U.K.
In short, Japanese foreign direct investment has been increasing at a rapid
pace since the latter half of the 1960's, but still remains relatively small at thepresent stage compared with the foreign direct investment of U.S.A. andWestern European major industrial nations.
Let us next examine the industrial composition and the geographical distribution of Japanese foreign direct investment.
As for the industrial composition, the following features seem to deserve ourattention. First, in terms of the accumulated values of investment, the investmentin the primary industry stands first (32.0%), the investment in the manufacturingindustry comes next (31.7%) and the third position (12.0%) is occupied by theinvestment in commerce. More than 90% of the primary industry investment
has been made in the mining industry.
Turning our attention to the number of investment projects, we find a different pattern. One third of all the foreign direct investment projects has been
made in the manufacturing industry (33. 1 %) and commerce (30.4%) respectively.

Investment projects made in the mining industry represents only 3.4%.
Based upon the above two features, we may draw the third feature which isconcerned with the size of investment projects. Straightforward -calculation of
the average size of investment projects using the above figures tells us that the

average investment project of the mining industry is 9.3 times as large as thatof the manufacturing industry, and 22.5 times as large as that of commerce. As amatter of fact, one of the main features of Japanese foreign direct investment,(4) See a similar kind 6f attempt made by Professor Koichi Hamada. "Japanese Investment
Abroad,j' in Peter Drysdale, ed., Direct Foreign Investment in Asia and the Pacific, Australian

National Univetsity Press, 1972, pp. 173-200.
(5) At the end of March, 1974, it has reached 10,270 million dollars.

HIDEKI YOSHIHARA

66

compared with that of other advanced industrial nations, is that overseas manufacturing investment projects have been small in size and that many of them havebeen made by medium and small-sized enterprises.
Turning our attention to the geographical distribution, we may point out thefollowjng features. First, jn terms of the accumulated values of inyestment, thebulk of Japanese overseas investment has been made in the following five areas:(1) North America (24.0%), (2) Latin America (17.6%), (3) Asia (23.3%), (4)the Middle and Near East (14.6%) and (5) Europe (11.9%o). The shares represented by the other two areas have remained relatively small: Africa (2.5%) andOceania (6.2%).

That more investment has been made in developing countries 'than inadvanced countries is a salient feature found in the geographical distribution ofJapanese foreign direct investment. This feature is evident in the following
figures which compare the share of investment made in developing countries ofmajor industrial nations by 1970: U.S.A. (26.0%), U.K. (33.39o), West Ger-

many (29.0%) and Japan (50.8%).
As host countries for Japanese foreign direct investment, United States andWestern European countries have mainly received the investment in commerce,and banking and insurance. Many of the subsidiaries and branch offices established in these countries are sales companies and thelike engaging in marketing

activities with the view of expanding the exports of their parent-companies tothese areas.

On the other hand, in developing countries like those in Asia and Latin

America, manufacturing investment projects have been predominant. Many
manufacturing subsidiaries have been established by Japanese parent companies
in order to cope with various import regulation policies of these countries aswell as to take advantage of their abundant and low-cost labor force.
United States foreign direct investment shows a marked difference .withrespect to these points. First, the investment in the manufacturing industry has
occupied a predominant position in the overall foreign direct investment. Second,

Canada and advanced industrial countries in Western Europe have been major
host countries for U.S. manufacturing investment.
As mentioned earlier, nearly one third of Japanese foreign direct investment

has been made in the mining jndustry. Although Japanese oyerseas mjninginvestment is scattered all over the world, with respect to the three areas of the

Middle and Near East, Africa and Oceania, the mining investment is far more
important than other investment.

JAPANESE BUSINESS ABROAD: PAST, PRESENT AND FUTURE 67

HI. Recent Developments of International Business Aetivities

tt'
From now on, we shall focus our attention upon manufacturing firms andattempt an examination of the nature of recent developments of their international

business activities. •As a general trend, we may say that the export of finished goods is rela-

tively losing its importance in the overall international business strategy, and thatthe export of technology and whole sets of plants, and especially foreign direct

investment are rapidly getting more importance. This trend is reflected in the
rapid increase of overseas manufacturing investment in the recent past. During

the two fiscal years of 1972 and 1973, overseas investment of 5,835 million
dollars was approved and this figure represents approximately 60% of all
the accumulated values of Japanese foreign direct investment. And the manufacturing investment has also increased rapidly during these two years.

A major reason for setting up overseas manufacturing subsidiaries was todefend local markets in host countries on account of difficulties in exporting

goods from the Japanese parent companies. So,-markets ofoverseas sudsidiaries
wcre naturally limited to local markets ofhost countries. Since the end of the
1960's, however, a change has been taking place. According to the recent investi-

gation of the Export-Import Bank of Japan, "exports to third countries" and"exports to Japan" from overseas subsidiaries have become increasingly importantas motives for establishing overseas subsidiaries.`6' The strategy of "exports toJapan" is extensively carried out by subsidiaries set up in such cou.ntries as

South Korea, Taiwan, Hong Kong and Singapore. The strategyof "exports tothird countries" is being carried out most energetically by those subsidiaries
which produce textile products' and electric appliances.

The change observed in the market orientation of overseas subsidiaries may

be termed as a shift from "local market orientation"to "local-plus-export
market orientation." It may also be called a changed from a "single-country
approach" to a "multi-country approach."
The following two factors may be pointed out as main forces contributing tobring about this recent change. The first factor is a change ofgovernment policyof host countries. Many developing host countries have recently shifted theemphasis of their industrialization policy from import-substitution to exportpromotion. Overseas subsidiaries located in these countries are generally expect-

ed and sometimes even required to adapt themselves promptly to this change of(6) The Export-Import Bank of Japan, Japanese Private Investments Abrotid: The Summary ofThird euestio'nuaire Survey, 1972.

68

HIDEKI YOSHIHARA

government policy and make serious efforts to export their goods. The second
factor is a sharp rise in the manufacturing costs of Japanese parent companies.
Such recent factors as revaluation and floatation of the yen, a sharp rise in thewage level, a severe regulation of industrial pollution and the oil crisis have

rapidly deprived Japanese rnanufacturing companies of their comparative costadyantages over U.S. and European competitors. In this situation they havebegun to assign a new role to their overseas subsidiaries : manufacturing basis

designed for exponing their products to third country markets previously
supplied by the parent companies.
Some newer trends are observed among a relatively small number ofmanufacturing firms which have been exceptionally ambitious in their international business activities. A textile company has started a subsidiary inEngland and is collecting the latest information on fashion in Europe throughit. An electronics company has established a subsidiary in the center of theAmerican •electronics industry with the vjew to gain direct access to the latest
research information in the United States. Still another textile company has set

up a sudsidiary in Hong Kong to raise funds in the financial market there.
Some firms in such industries as textiles, electric machines, and foodstuffs

have begun to establish an elaborate network of production and marketing on a
global basis: first exporting equipments and half-finished goods to subsidiaries

in developing countries from parent companies; secondly working upon them atthe subsidiaries using relatively cheap labor force; and then lastly exporting thefinished goods to markets of advanced industrial countries from those subsidia-

ries through the international marketing channels of the parent companies.
If we forecast the future of international business activities of the Japaneset

manufacturing firms with these recent deyelopments in mind, how would it be?

To the author it would be as follows: the leading Japanese companies will.- network of their logistic functional activities
establish and manage 'an elaboratesuch as research and development, purchasing, manufacturing, marketing, fundraising, etc., on a global basis. These Japanese firms pursuing a "global approach" would fu11y deserve the label of "multinational enterprises."

IV. Obstacles to Emerging Japanese Multinational Enterprises
Is there any possibility that a considerable number of Japanese firms willdevelop to be genuine inultinational enterprises just as the U.S. multinational
enterprises ?`7' Let us exarnine this possibmty by paying attention to a few
important features of Japanese firms.
(7) Raymond Vernon, Sovereignty at Bay, Basic Books, 1971, Chapter 1.

JAPANESE BUSINESS ABROAD: PAST, PRESENT AND FUTURE69(1) Predominance of Joint Ventures
There exists a marked difference between U.S. overseas manufacturing subsidiaries and Japanese counterparts with respect to the ownershi'

p pattern. While

the majority of the former is wholly-owned by the U.S. parent companies, joint

ventures are predominant in the case of Japanese overseas manufacturing subsidiaries. And in many instancesjoint ventures consist of three kinds of investors:

Japanese manufacturing companies, Japanese trading companies and local manu-

facturing or trading companies in the host countries. Professor Yoshihiro
Tsurumi, who is studying Japanese multinational enterprises as a member ofthe Harvard Multinational Enterprise Pr(ject has called this particuinr formof joint ventures "three-partner-four-legged"joint ventures.

Joint venture subsidiaries have the advantage of utilizing various kinds ofbusiness resources provided by partners such as financial resources, management

skills and manpower, distribution systems, etc. But ori the other hand, sincemore than one investor takes part in decision-making, and since the aim andinterestsof participating investors are not necessarily the same, conflicts ofinterests easily occur among them. These conflicts would generally occur when
they make dicisions on such important matters as distribution'of profits, transfer

prices, assignment of territories of sales, business expansion or reduction, andproduct diversification.

Such disadvantages ofjoint ventures as mentioned above are unnoticeable
when subsidiaries set up in various countries are local-market oriented and thus

largely independent from each other. But when parent companies begin to achievesome form of specialization and coordination of overseas subsidiaries under theview of global business strategy, the disadvantages will soon come to the fore.`S'

So far, U.S. multinational enterprises have consistently pushed forward thepolicy of complete ownership to pursue their multi-country or global approachin international business activities, avoiding joint ventures in which their control

over their subsidiaries might be diluted. A basic reason why they have been able
to carry out this policy of complete ownership is that they have been able to offer

various valuable contributions to host countries such as supply of monetary
resources, employment and training of the local labor force, transfer of advanced

technology and management skills, and contribution to exports. In addition,they

have sometimes been backed directly or indirectly by the enormous political,

economic and military power and influence of the U.S. Government over thesecountrles.

On the other hand. host countries, especially developing host countries have(8) These points are fu11y treated in: John M, Stopford and Louis T. Wells, Jr., Managing theMultinational Enterprtse, Basic Books, 1972.

HIDEKI YOSHIHARA

70

recently begun to strongly demand the participation of local partners in theownership. An increasing number of deyeloping countries have come to declarethat foreign investment projects should be in the form of joint ventures.
In this situation the promotion of the policy of complete ownership by U.S.

multinational enterprises has come to face growing anti-U.S. attitudes andmovements of the peoples and governments of many host countries. Actually,
not a few U.S. controlled ,subsidiaries have been nationalized in countries of
Latin America.
In the case of Japanese firms, whatever the reasons and intentions may be,they have traditionally shown a tolerant attitude toward joint ventures and thus

an attitude of accepting the demand of the host governments. More than 2,OOO

manufacturing investment projects have been made in Asian countries. There
has been no single case in which Japanese subsidiaries have been nationalized,

although severe criticisms upon them have been widely observed in many AsianCountries.(9)The disadvantage of joint ventures, that is, conflicts among partners anddilution of the control of parent companies over their overseas subsidiaries has
been generally dormant in Japanese firms since they have still retained a single-

country approach. But as they begin to promote a multi-country approach or a

global approach and atternpt to achieve a coordinated network of overseas
subsidiaries on a global basis, the disadvantage will gradually become active andpose complex and difficult problems.
In the long run, we may expect that both U.S. firms and Japanese firms
will reach more or less the same solution to the problem of the conflict between
their global business strategy and the national sovereignty of host countries. But
the question that accounts at present is which ownershjp policy, the U. S. or theJapanese, will be better for firms to survive and grow as multinational enter-

prises for some time until the solution comes.

(2) Weakness in Research and Development
As distinguished from foreign indirect investment which involves an internatiqnal transfer of only financial resources, foreign direct investment means aninternational transfer of packaged business resources and capabilities. ' It hascome to be generally accepted that the driving force of growth of the U. S. multinational enterprises has been their superiority in business resources and capabilities, especially the ability to develop new products, modern production manage-

ment and marketing know-how, and various management procedures and(9) Only ten or so Japanese companies have been or are going to be nationalized in such countrieS

as Peru, Zaire and Ethiopia.

71
JAPANESE BUSINESS ABROAD: PAST, PRESENT AND FUTURE

techniques. If we would attempt a comparison of business resources and capabilities between leading U.S. firms and Japanese counterparts, we would see awide gap in the ability to develop new products, though no great gap in otherresources and capabilities.

Compared with Japanese and Western European firms, U.S. enterprises
have been favorable in strengthening their research and development capability.

First, we should notice the peculiar nature of demands of the U.S. market.
Many of the important modern manufactured goods which may be characterized

as either high-income products or labor-saving products have been usually. in the U.S.A. and then gradually have spread to other advanced
demanded firstindustrial nations including Japan.{iO' Secondly, we know that in the U.S.A.
many big projects such as aero space development pfojects and military projects

have been carried out under the financial support of the U.S. Government.
Leading U.S. enterprises haye participated in these big projects and acquired

the newest scientific knowledge and information while making good profits.
And thirdly, the relative largeness of U.S. firms is advantageous for them tocope with financial and time uncertainties involved in developing new products.

As analysed and predicted by Professor Raymond Vernon of Harvard
Business School, if U.S. enterprises will continue to maintain superiority inresearch and development capability in the future, we should admit that thepresent predominance of their foreign operations over those of Japanese andWestern European firms will last for some time.('i)
However, if we consider the following points, we might cherish some hopes
for the future of the research and development capability of Japanese firms. The
first point is that Japan is supposed to be going ahead of Western countries withrespect to the seriousness of such contemporary problems as industrial pollution,

environmental deterioration, traffic congestion, urban problems of overcrowded
big cities, energy crisis, etc.. If this is true, it may well be assumed that theneeds in Japan precede those in the U.S.A. and other advanced industrial
nations. The second point is that U.S. Government supported military andscientific development projects may only indirectly and slightly contribute to thedevelopment of new products and technology which are useful to solve suchcontemporary problems. The third is that the size of the budget for researchand development in 1eading Japanese firms is rapidly getting larger with therapid growth of these firms.
If we prospect the future rather optimistically with these points in mind, we(10) Raymond Vernon, "International Investment and International Trade in the Product Cycle,"
Quarterly Jourual of Economics, May 1966, pp, 190-207.
(11) Raymond Vernon, Sovereignty at Bqv(op.cit,),Chapter 8.

HIDEKI YOSHIHARA

72

can hope that the Japanese firms will even exceed the U.S. competitors in theircapabMty to develop new products urgently demanded by the advanced industrial
nations. As a matter of fact, Japanese firms are going ahead of U.S. competitors

in the race to develop pollution controlttechnology, public mass-transportation

systems and less-gas-consuming compact cars with cleaner engines.
And even in the field in which U.S. firms hold the supremacy, Japanesecompanies may lessen the handicaps to a certain degree by establishing in the
U.S. market subsidiaries whose major function is to collect the latest infor-

baation on the emerging new products and technology.
(3) lnternational Applicability of Japanese Style Management

Recently, as the number of Japanese overseas manufacturing subsidiaries
increases, the question whether the Japanese style management works well in
foreign countries has come to assume not only an academic importance but alsoa practical importance.

According to a rather popular view the international applicability of theJapanese type management is rather poor compared with that of the U.S. typemanagement. The following points may be referred to as a major basis forthis view.

Among the employees of U.S. firms in early days, many immigrants were
included. Most of them were poorly educated and could only understand fragments of English. Interpreters were hired for these employees in some firms.(i2>The U.S. type management has been formed out of the long practice of managing
the employees who were heterogeneous in culture, race and language. So, aformaljzation of procedures of management has developed to a high degree andimportant procedural aspects of management have come to be explicitly stated invarious manuals such as managers' guides, job descriptions for each employee,
and organization charts.
Japanese style management has evolved out of a completely different history.
Since the beginning of the Meiji era, Japanese employees, from the top of presi-

dent to the bottom of ordinary workers, have been exceptionally homogeneousin cultural background, race and language. They have shared a common basis
for mutual communication and understanding to a relatively high degree. As aresult, Japanese style management has shown an impressively contrasting featurecompared with U.S. style management: many of the procedures of management
have not been formalized and thus remained implicit.
It would be rather natural to assume that the Japanese type management,(12) JeremiahW. Jenks andW. Jett Lauck, The Immigration Problem, 5th edition, Funk &Wagnalls Company, 1922, pp. 199-200.

JAPANESE BUSINESS ABROAD: PAST, PRESENT AND FUTURE73
because of the above mentioned history and feature, would encounter more difficulties in managing foreign employees in overseas subsidiaries than the U.S. typemanagement. Japanese managers are not accustomed to deal with foreign employees whose cultural and social background is quite different from that ofJapanese employees. And the feature of implicitness of the Japanese typemanagement may provoke a slow acceptance, misunderstanding and even overt
rejection among local employees in overseas subsidiaries. To them, Japanese
way of management is often mysterious.
Secondly, we need to think that the U.S.A. is a huge country with an areaof about 25 times as large as Japan. The distance between New York and San
Francisco is nearly 3,OOO miles and is roughly equal to the distance between

Tokyo and Bangkok of Thailand. U.S. firms, as experienced in managing
branch factories and offices in San Francisco from their head offices in New

York, may well apply their management skills and procedures to control
their London subsidiaries.`i3'

By contrast, Japanese management skills and procedures, as having evolved
through the practice of controlling branch factories and offices located in a small

country, may not be suitable for the emerging Japanese multinational enterprises
which may consist of many subsidiaries and branch offices dispersed all over theworld.

However, on the other hand, there are some who hold the opposite view.
According to thier view, the international applicability of the Japanese typemanagement is not poor. They argue that the U.S. type management, whenapplied in a complicated and socially dense country, may be inferior with its
hierarchical, competitive, individualistic, and profit-oriented features; while theJapanese type management may produce better results in the future with suchfeatures as lifetime employment system, compensation and promotion of em-

ployees based upon their employment period and educatiQnal background,emphasis on organizational loyalty and teamwork of employees, and decisionmaking by collective agreement.('`)

In the above paragraphs we have treated two different views on the international applicability of the Japanese type management. Which view is morereasonable? Are Japanese overseas subsidiaries managed under the same type ofmanagement as employed in their parent companies? How are the results, orwhat kind of problems are they facing now? To these questions and to theearlier questions of joint ventures and research and development capability, we(l3) For this point the author is indebted to Professor Yoshihiro Tsurumi.
(14) Richard D. Robinson, "The Future of International Management," Journal of International
BiLsiness Studies, Spring, 1971.

HIDEKI YOSHIHARA

74

can not give.reliable answers novv. To our great regret, studies on the international business activities of Japanese firms are evidently insufficient. Any
reliable forecast for the emergence of genuine Japanese multinational enterprises

demands us to carry out theoretical and empirical studies on the subjects on afull scale.

Notes:(1) This paper is basically an English yersion of the author's earlier paper,"Nihon Kigy6 no Seich6 to Kokusai Keiei Senryaku," Kokumin Keizai
Zasshi, No. 6, Vol. 128 (December 1973), pp. 59-72.
(2) The figures used in the paper are drawn from the following sources:(a) Japan External Trade Organization (JETRO), Magakuni Kaigaito-shi no

GenJ'o- Kaigaishi'6 Hakusho No.2 (Current Survey of JapaneseForeign Direct Investment White Paper on Foreign Market, theSecond Part ), 1974 edition.
(b) TsUsh6sangy6-sh6 (the Minjstry of International Trade and Industry),
Magakuni Kigyo- no Kaigai Zigyo-katsudo- (Survey of Overseas Business
Activities of Japanese Firms), the third survey, 1974.

'(3) A part of the studiesof the paper has been financed by the subsidy of the
Ministry of Education of the Japanese Goverment (the fiscal year 1974,
Project No. 933010).

KOBEECONOMIC & BUSINESS REVIEWCONTENTS
NO. 16 (1969)
The Change of Regional Characteristics of Industries in Japan................................Minorzt Beiko
Functions of Screen Account..."....".-..."........",."-.................m..-.-."..",..."..."H.".. IVobuko NosE

On Mr. Stoleru's Optimal Policy for Economic Growth...........................................Hikoji Katano
A Note on Shorter Working Hours for Seamen..,...........................................Hiromasa ramamoto
Objectivity Reexamined........m...H......"..."..,.".H".""......-..""......"................."-.-.m...Isao IVakano
A Note on the Behavioral Theory of Innovation.,.........,....................................... Hideki Yashihara

NO. 17 (1970)
An Outline from Office Management to MIS in Japan..............................................Minoru Beika

Japanese Economic Growth since.the Meiji Restoration:
A Social Accounting Approach......,,....................................................Afobuko IVose'

Efficiency of Optimal Growth Policies for Development........................................... Hikoji Katano

Decasualization of Dock Labour-Experiences at the Port of Kobe-.........................................Hiromasa Yamamoto
The Characteristics of Recent Corporate Mergors in Japan......................,.................,...Jiro Ono
EstuJos Brasileiros no Japa-'o..........................,,,..,............................................ Moshiaki ?Vishimukai

A Note on the lntegration of Economic Theory
and Organization Theory...........,...,,................................................ Hideki Yashihara

NO. 18 (1971)
F-,nvironmenta1 Pollution Problems from theView Point of Business Management............. ....................... ............ Minoru Beika
Patterns of the Japanese Engineering Trade (195j-l970)............................................Fukuo Kawata
Opimal Process of Economic Development.....,....................,..................................... Hikoji Katano

Wage and Behaviour Difference in Collective
Wage Bargainings of Japanese Shipping Companies-A Case Study of the Japanese Shipping Industry,........,,,........................................ Hiromaga /amamoto
On Accounting Communication..H-H..,....,.."....,,..."".......m...""...."...H..."H."...-.-".... Isao Nakano

NO. 19 (1972)
Patterns of Export Trade of Argentina and Brazil:
A Comparative Study..".."..."..."..""...................................................Fukuo Kawata

Entrepreneurship in America...".-.-..".""."-.."."Hw..............."....-.,"................... Tadakatsu lnoue
Generalization of Two-Gap Theory............................................................................ Hikoji Katano

Accounting Measurement and Homomorphisin,...,....................................................... Isao Nakano

An Interpretation of Two Stage Least Squares

Estimators as Indirect Least Squares
Estimators in the Overidentified Case.................... ......................Hirashi Sadamichi
A Note on the One-dimensional Random Search................................,...................,Komayuki Itow

Exchange Rate Systems and Distribution of
Seigniorage"..........."....H.."...-..."....-...........................-...H"H...."""Kazuhiro Igawa

NO.20 (1973)
An Analysis of the Brazilian
Balance of Payrnents: l960-t972...,....,..,......,......

.•••••••.........................Fukuo Ka"'ataInternational Money Flow and
the Multinational Corporations ......,....................

.............................,Masahiro Fujita

Estimation of lnvestment Allocatjon
Ratios of Japanese Economy: 1960-1969......,......
Available Jobs and Empioyment inJapanese.Foreign-going Shipping.,..,.,..................

.........,.,.....................Hikoji Katano.......................Hiromasa }'amamoto.Homomorphism and Business lncome Measurement.,...,.....,..

J•••••••••••••-•••J•i•............ Isao Nakano

Assets Choice and Optima}, lnternatiunal Reserves ..,............

...............................Kazuhiro Igawa

KOBEUNIVERSITYECONOMICREVIEW20, 1974
Edited by Faculty of Economics,

Kobe University, Kobe, japan

CONTENTS
Vatue and Production-Price...."-.m...-."....,M-,...".",..""..........."............"-...............Nobtto 0kishio

The Social Foundations of Economic Exchange.,...............,........,..........................Toshimasa Mukai

The Pattern of Japanese Economic Growth,

1960-1970: The Rate of Growth,Labour Productivity and Price Levels.............................................Kikunosuke Ohno

More on the Effect of Economic Growth on
Foreign Trade.."".H...."..,".."H.H..,"...,....,..........."..,".............."........Kiyoshi Ikemoto

Population Growth, Agricultural and Econpmic ,Development of Japan since the Meiji Period .............................Mitoshi Yamaguchi

A Formal Proof of Marx's Two Theorems:
COmmenL.........,....".",".-....H"H."...",....,............."........................StLsan Himmelweit
ReplyH.•••i••••..,.."...,.....,..H....,....,..-H...w..,.,H.".-........................-......,,fVobuo Oklshio

ewtuew1bunydewtuntSl-utIMMN-i--HmuNNta--ny"ffpmkekk,otnv"lany1tiPMn-i-ut-FjP"iEt-twi--s"ptbuH-11ew"kiewpa-,ripmi-il"1pmi--tipmtsin-,Mpm"fii,

THE ANNALS OF THE SCHOOL
OF
BUSINESS ADMINISTRATIONKOBE UNIVERSITY 1975
Edited by the School of Business Administration,

Kobe University, Kobe, JapanCONTENTS
HeutigerStand und Problematik derUnternehmensbesteuerung in Deutschland. .----J-----------------------------+t---.--

Gunter Wb'heEconomic Aspects of Organization
Theory and Decision Theory.,.,......,........................................... Marcell Schweitzer

Causality and Matching Concept ......".,................,..

'-•••••-••••••••••••••-J+•--••-•--••-•••••... RyuJ'i Takeda

Flow of Funds Accounts and Capita1
Market Structure in Japan (2).......L.•....................................................,.......Jiro Ono

A Causal Model of Shopping Behavior...................

•••••••......................•••...............Masanori Tamura

Ein Abriss der Theorie der Seeverkehrsmljrkte..,..

.".......-...... .. .............H........". Kunio Miyashita

Personnel Managernent in the UnitedStates during the 1920 s.....m...."."-.

,.".... ...........................,.............Koji Okubayashi.nee"M,""--"N"ewik.,tt-Pk,-"n-"Pk--Nnvi-.,NN-Ub"--n"PhewWewph,

KOBE UNIVERSITY LAW REVIEWInternational Edition No. 10, 1974
Edited by Facuity of Law •Kobe University, Kobe, japan

CONTENTS
Research on Labor Co-Determination in West Germany...............................................Kei'i Kubo
La garde fi vue et son contr61e en drojt compare (1)............................................Kuni'i Shihahara

THE RESEARCH INSTtTUTE FOR ECONOMICS AND
BUSINESS ADMINISTRATION, KOBE UNiVERSITYHISTORICALSKETCH
In 1919, a research organization named the Institute for Commerce wasfounded in Kobe Higher Commercial School, one ofthe chiefpredecessors ofKobe University, with a gift made by F. Kanematsu & Company, a leading
mercantile firm in Kobe. The organization was designed to carry on and facilitate integrated research on business and commerce and to formulate andpublish the results ofthese studies and investigations in such form as to makethem available to the business community.

With the founding of Kobe University of Commerce, successor of Kobe
Higher Commercial School, in 1929, the Institute extended its research ac-

tivities by adding several divisions. One was the famous Latin-American
Library, which soon became the center of research in this field in Japan. A
room for statistics equipped with various computing machines was establishedand began publication of Jtiyj Tokei Keizai monthly and Sekai Bbeki To-kei
annually. A filing room was prepared to deposit press clipping files systemat-

ically arranged by topics and dates. Another room wasdesigned to become
the center of all posible original records and data having to do with the be

ginning and progress of Japanese business.

On the campus of Kobe University of Commerce, another organization
named the Institute for Business Mechanization was founded in 1941 utilizing

business machines donated by the IBM Corporation and others. With Professor Yasutaro Hirai as its head a broad and forward-looking plan for business mechanization in Japan was developed.

In 1944, Kobe University of Commerce changed its name to Kobe University of Economics. After the War, however, the University was consolidated with three other colleges in Hy6go Prefecture to become Kobe University.

With this development, the two Institutes were also amalgamated into the

Research Institute for Economics and Business Administration Kobe Uni-,

versity. At present, the Institute, with its twenty four fu11-time professional
staff members, carries on studies and investigations in international eoonomy,.

business administration, and information systems in Japan.

LOCATION AND BUILDINGSThe Research lnstitute for Economics and Business Administration is
located on the campus of Kobe University, Rokko, Kobe. It consists of two
three-storied buildings. One is named the Kanematsu Kinenkan and has afloor space of about 2,900 square meters, which includes a president's room,
forty-one offices, six rooms used as a library, a room for statistics, etc. An-other is built in 1964. It has a floor space of about 1,900 square meters,
which is chiefly used as the Documentation Center for Business Analysis, alibrary and a conference room.

ORGANIZATION
Under the directorship of the president, the lnstitute operates withrgsearch groups. Each research group and its sections are as fo11ows:

A Group of International Economy(1) International Trade(2) International Finance(3) Maritime Economy(4) Latin-American Economy(5) International Low of Economy(6) International Labour Relations
B Group of Business Administration(l) International Management(2) Business Administration and Information Systems(3) Accountingtwo(4) Business Statistics
Besides the regular work of the Institute, research committees may be creat-ed to carry on any special work requiring the joint study ofacademic andbusiness circies. At present, there are three committees, that is, Committee

on Structural Change in World Economy, Committee of International
Finance and Committee of Information Systems.

-- --i

For conyenjence and greater efficiency in carrying out its research activities, the Institute has a general office which is responsible for 1) 'the collection

and preservation of a comprehensive collection of books, periodicals, pamphlets, and original records and data of finance, trade, commerce, industry
and business generally; 2) the classification, cataloguing, indexing, arranging,annotation and compilation of these research materials; and 3) the formulation and publication of the results of the investigations and studies accomplished by the professional staff members of the lnstitute.
As an affiliated institute, the Documentation Center for Business Analysis

4 It is the first systematic information fac"ity inhas been established in 1964.
the field ofbusiness administration in Japan that has been recognized andauthorized by the Ministry of Education. The purpose is to collect and to
make intensjve control of aJl,kinds ofmaterials on business administrationand to make them available to scholars, uniyersities, governments, and busi-

ness world with the aid of modern documentation techniques.

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RESEARCH ]NSTITUTE FORECONOMtCS & BUSINESS ADMnvSTRAT,ION
KOBE VN•IVER$l.TY
Director; Seiji SA$AKI
Secre[ary: l<ei•ichtKEDA

iil.

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GROUP OF BUSiNESS

i GROUP OF INTERNATIONAL

i ECONOMiC RESEARCH ADMINtSTRATION RESEARCH
i

Mino,ru BEiKA Prol'essor c)d' Busiiiess

Profes,sor of Maritime
1 Seiji SAsAKI,1•i Dr, Economy
of' Economics

Administralion tmd

11' Jiro YAo Professor of lnternational

l1'
Dr.Financeof Economicsi
I[•CEIt]Oll1•'ri}dakatsu tNouE Pret'e.ssor 'et' lnter,natvona'1

i Toru KANo ProfessoT of lnrernalional

M211121geMent-

l Masah•iro FujiTA Professor o'f lnternationa]

Aki,o MoR,L Proi'eSsof ot' Businessfi]lilll'ee!

.iI Dr.,IFinance•af Econom'ics

Dr. o't' Bus•i,ness

Administ-atjon
No,bukoNossE Pret'esSor oi' Businessll ph,
Dr.D,ofTrade
Ecenomics
in stzatisti.c,sIStatis'tli'cs
Dr. bl' B•us'iness AU'miny•

iStration

1

i Hiromasa YAMAMOTo Pr,ofe.ysor of Interna['ienai/ti Ltibour Re]'atioils

Ssno NAKANo Asso'citLte •Proi''i

Hideki YosHmARA Asseciate Professor ot'lnternutionil" ManaeeJnent
I

l Testuji SHJMeJo Ass-oc/iale Professor oL

Hires,hi SADAMiCHI At .so,e-aLe Professor ol/

l Marit•ipie Econom,yBus.iiiess Stalisti,cs

Ph, D, in Econo'melrieh'l Kazuhlro lGAwA Rese:Lrch Associate efi

l' lnternation.al Tradegsser pt'

AcceuJILitlg

i Ybshiaki NisHiMuKAt Pro'fesser et' 'Res,lenttl,l Amepieal{

1i Hikeji KATANQ Proi'ek.sor .et' lnte.rna,t,riennt

i Study on Latin

/

i

i

l Law,

I1

lnii'ohtnation Sys/tems
Dr, .o t' iBvsinesS Admin[s•i'Ke]nayuki lTow A#sociaLe Proi'essot vl'
Btisjn,ess Adtn i•nj,tiLrapien
tula l'llt'ovmLl{jotl Syst•ems

i Kunio So Rese,arch Associate ot' ]nlernational Labour Rel'a!j,ens
1•/

i Oi'ilice: The

K'an,emalsu Memorial Hai•1

UNIVERSITY
KOBE, JAPAN1 ROKKO,

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