Japans High Speed Growth Model and Extent Vietnam Followed the Model - Essay Example

Japan’s High Speed Growth Model and Extent Vietnam Followed the Model. Introduction It is a known fact that Japan today boasts as one of the most powerful nations in the world and that Japanese economy is the second largest economy in the world. So we need to understand the factors which took place to overturn the fortunes of a country which was shattered to pieces five decades ago. This turnaround is termed as a remarkable event in the modern day economic history. To understand the high speed growth which took place after the war was over, we should first understand its development and history of Japan during 18th and 19th century. During this time Japan relied on agricultural technology which it developed. the then government of the Meiji took some modernized measures which propelled the economy of Japan later in the 19th and early part of 20th century and by the year 1945 Japan was considered one of the most powerful nations both economically and militarily, and this led to the basic foundation structure of the post war high speed growth. To understand the post war economic miracle in economic terminology we will bring the concept of neo-classical theory of economic convergence. This economic model concept brings out the reality of the Japan’s post war economic miracle. Economic Model The basis of such model which constituted the high speed growth in Japan was actually brought by two people – Solow and Swan in 1956.Later many people developed the model as per the timeline they lived in. The model provides interesting results. They are termed as follows. Every economy has its own steady state that is to say a kind of growth ceiling to its own possibilities of sustained per capita income growth. This is usually determined by the company’s structure of technology and its economic level, rate of savings, rate of population growth and rate of human capital depreciation. The whole scenario can be turned into a mathematical format and can be formalized in the following manner. Let the production of output Y t be a Cobb-Douglas function with physical and human capital define by Kt and effective labor AtLt so that Y t = F(Kt, AtLt )=Ktv (AtLt)1-v where the level of knowledge At and the labor force Lt grow at the exogenous exponential rates g and n respectively. Another important feature of the model is that it states that each country necessarily converges to its own steady state and per capita income will only increase at the same rate as the level of the technology present. So this model provides whole basis and framework of how Japan has shown economic miracle post war. The factors which the model takes as describing its analysis are war destroying the nation and it’s per capital stock, increase in the saving rate after wards and increase in the level of technological progress . We can understand that all such events have taken place in the Japanese history. So we realized that Solow model was based on the assumptions war torn country uplifting its economic stock level and also its technological acquisition level after the war and as per our knowledge we can say that Japan has done just to the same assumptions which propelled it to a great nation few years down the line. This can be bolstered by the fact that Japan participated in the World War II and a large part of its capital stock was destroyed in the early part of that same decade. If we look at the statistics Japan‘s saving rate grew at 19.8 per cent from the period of 1930-1948 and at 34 percent form 1949-1980. Finally the confirmation of technological progress in terms of development of electronics arena and automobile sector proved that Solow model of the high speed growth model was the just the substance required for Japan to rise from the rubble High Speed Model and Vietnam Before venturing into discussion of how Vietnam followed the model. Let’s first understand the economic comparison of the two countries. If we consider Japan we can say that Japan was had a war style economy before 1945 and market economy after 1945. Japan had problems like high inflation rate, unemployment, destructed economy and food shortage during the war but it used the Solow model, started breaking new ground and new industries and also broke the bottlenecks in the production. This helped to transition the economy. If we consider the case of Vietnam it had a central planned economy during the Vietnam War and had market economy after 1986. It also faced problems during the war crisis. It was destroyed during the war in late sixties and early seventies of the twentieth century. Conflict with neighboring Cambodia resulted in cut of foreign aid. Another important factor which hampered the growth of the economy of Vietnam was the weather and climatic conditions present in that region. Other problems which existed were high inflation rate, food shortage and budget deficit. So in order to combat such issues Vietnam needed to take such measures. So the first thing it could improve is the establishment of legal framework like initiating foreign investment law, corporate law. Secondly it should facilitate foreign investment activities like an example of Japanese FDI in Vietnam. To improve its economy structure it should also encourage the development of industrial sector so as to promote Vietnamese industries. It should focus on industries like oil, food and textiles. It should also welcome hi-tech industries like automobile industry of Japan and setting them up in Vietnam. Also the concept of implementing land reform could prove beneficial for the development of the economy of the country. Now let’s try to understand the scenario of the economy of Vietnam. We all know that Vietnam was struck with war during the sixties and seventies decade of the twentieth century; America’s involvement in the war destroyed the nation which was trying to lift its economy through agricultural reforms. Since 1986 Vietnam has a market economy, but soon it was realized that the situation in which Vietnam found itself was exactly the same which Japan found itself post world war. Both had same features of war stricken country with destructed capital economy stock structure and high rate of saving. So it implied that the economic model of Solow which realized the high speed growth of a country’s economy fits the bill in the case of Vietnam and so the concept of High speed growth model was also applied in this case too. It is to be known that before the year 1985 Vietnam followed the Stalinist socialism and its concept of central planning of economy and its plan of collective agriculture and though the war was over, economy got shattered. Even the big asset of Vietnam – agriculture was showing signs of collapse and at one time it’s started importing rice. And this was the time they have employed the concept of Doi Moi. Doi Moi revolution of restructuring economy was on the similar lines of High speed growth structure and the fruits of the success of Doi Moi revolution paid off when in 1995 Vietnam became the third highest exporter of rice in the world. This transformation can only be ascribed to the fact that the country has realized potential it possessed and it realized the drawbacks of the Stalinist socialism structure .Definitely we can say that the concept of high speed growth model has the affected the way the economy of Vietnamese economy is today and the model has the changed the economic structure of the country. Doi Moi which means change and newness is the term which the country brought to renovate its economic structure. Doi Moi favors the concept of gradualism and political stability over radical change. The idea of Doi Moi originated from seeing the negative results of suppressing some spontaneous war-time experiments so it initiated some polices which included payment of wage and salaries on a straight cash basis, pricing of inputs to state enterprises on the basis of costs, Autonomy for the company managers modified foreign investment law, devaluation of currency to market rates, reduced restrictions on the private companies and providing a structure for foreign participation in banking. Although the whole concept was success, it still had few problems in the 90s. The government sought foreign investment and it had fallen below expectations due to problems in the country. Problems like unwillingness of the government to relinquish absolute control. It meant that there was an absence of the rule of law and foreign investors are controlled by the part officials, which encouraged corruption. Apart from these the infrastructure problems created problems for the business organizations. But still overall the problems are one which can be solvable over a period of time and these too were overpowered by Vietnam in the coming years. Thus the whole revolution created by Doi Moi which resembled the high speed growth model of Japan lifted the economy of Vietnam and currently Vietnam is one of the fastest growing economies in the world. Conclusion Comparing Japan and Vietnam would not be a correct approach but we can say that Japan‘s high speed growth model has effected the economic situation of the Vietnam in a major way. Both following the assumptions of Solow Model and both overturning their economies after their economies was shattered by wars only confirms the fact that Vietnam has learnt some important methods and steps to improve their economic situation from the high speed growth model. The whole issue is bolstered by the fact that if we look at the present situation Vietnam grew at a rate of 7.5 percent per year from the period of 1995-2004 and this is recorded as faster growth next only to the Asian superpower china. This was the time of crisis in that region with Soviet Union collapse but Vietnam only improved further with its foreign investment equal to 8 per cent of its GDP which is higher than china. All this suggests only one aspect that the revolution of renovating economy which it was inspired from the high speed growth model of Japan has only improved the situation of Vietnam and its economic structure. References: 1. Takatoshi Ito (1996) Japanese Economy. Boston: MIT Press 2. Bin Trah Nam (2002) Vietnamese Economy: Awakening the Dormant Dragon. London: Taylor & Francis 3. Andrew Gordon (2001) Post war Japan as History. Los Angeles: UC press 4. Takafusa Nakamura (2003) Economic History of Japan. London: Oxford University Press 5. Neil Jamieson (1996) Understanding Vietnam. New York: Pearson 6. Ashok Dutt (2003) Challenges to Asian Urbanization in 21st century. Kolkata: Wiley Read More