QUESTION 1: In the 1980s Japan was viewed as one of the world’s most dynamic economies. Today it is viewed as one of its most stagnant. Why has the Japanese economy stagnated?
According to the textbook, there are two reasons to lead the Japan's economy stagnated. First, it is the beginning of the collapse of the stock exchange and of bubble of real asset to lead the deflation, which has lasted more than 20 years, defying all attempts of the government to stimulate the country's economy. The deflation is like a vicious circle, so it seems the more the people and business respond, the more the deflation comes. The attempts of the government didn't bring a better result, otherwise, it led the public debt higher. Second, the Japan's population has an older age in comparison with the working age. It means the amount of people in the working age is decreasing and the amount of the people in the retiring age is increasing, so it leads to a trend of more saving than spending. That continues in the deflationary circle and stagnation.
QUESTION 2: What lessons does the history of Japan over the last 30 years hold for other nations? What can countries do to avoid the kind of deflationary spiral that has gripped Japan?
By the cause of the deflation, technologically, I think the government should find a way to prevent imaginary values of the real asset and shares on the stock market. The too hot development of the economy always contains potential risks of collapse, which is revealed by the market of real assets and stocks, so it is time the government is needed to watch over the manifestation. By a psychological look, I think the government and politicians should rouse continuous changes and innovations in the thoughts of the people and businesses, as well as the businesses are always encouraged for the success in the future when they are bankrupt. The concepts are affected by not only policies, but also culture and political viewpoint of a country.
Country Focus: India’s Economic Transformation
a. What kind of economic system did India operate during 1947 to 1990? What kind of system is it moving toward today? What are the impediments to completing this transformation?
During 1947-1990, the India's kind of economic system was mixed economy. It was overwhelming of the state-owned companies with centralized planning and subsidies by the government. Concurrently, it also permitted private companies operated under policies which seemed disadvantage for the private companies, such as postponing to expand the company and to develop a new product, or causing difficulties for firing workers.
After 1990, India's economy is toward the market economy by some moves, such as the repeal of the industrial licensing system, the expansion of private companies into some sections which were prohibited before, the permission of the investment by foreign companies, the reduction in tariff, and especially, privatization of state-owned companies.
However, India still remains difficulties, such as worrying in competition with inexpensive Chinese products, still remaining a big amount of state-owned companies being less efficient and India's laws causing difficulties for private companies, and especially, obstructing in privatization.
b. Why do you think India is developing strength in these areas? How might success in these industries help to generate growth in other sectors of the Indian economy?
The software development jumped from $150 million in 1990 to $70 billion in 2010, occupying about 5.1% of GDP. Moreover, in the pharmaceutical industry, India is credible in the global market. The figures indicate the India's economy is developing strength in these areas. When these industries succeed, they contribute significant taxes to the India's economy to help for development of other sections.
c. Given what is now occurring in the Indian economy, do you think the country represents an attractive target for inward investment by foreign multinationals selling consumer products? Why?
India has a second population in the world, so it is attractive for foreign investment in selling consumer products. However, if there is a decreasing of the tariff, China's inexpensive products will overwhelm the Indian market. This will affect employment in India and make it become an importing country. That's why political oppositions are opposing reducing import tariffs.
