Japan provides a fascinating case for studying economic development. With her real GNP rising at an annual rate of 4 percent during the period 1878–1942, Japan was the only Asian country that emerged from a backward agrarian society to become a modern industrial power. Her postwar economic performance has been even more phenomenal; the average growth rate of real GNP in 1955–1964 was 10.4 percent—the highest in the world. Her investment rate reached an astonishingly high level of over 40 percent in several years in early nineteen sixties. Believing that there is no miracle in economic affairs, economists began to search the secrets of Japan's extraordinary achievements in economic development. To offer possible explanations, they usually stress the active role played by the Japanese government in economic modernization, the vigor of the country's response to new stimuli, and a strong national consciousness. These factors, while undoubtedly important, do not reveal the whole story. There are in Japan a number of institutional traits which, in my opinion, are highly conducive to economic growth. However, the contribution of these institutions to Japan's economic development has not been fully recognized because, in part, they were not designed for that purpose. Their growth-stimulating effects are accidental and unexpected. As a matter of fact, some of these institutions may even appear as economically irrational or socially unjust. Consequently, when students of the Japanese economy study these institutional factors, attention is usually directed to the negative side.

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