By George Tait Edwards, MBE
1 Why the China Sea Economies Grow Rapidly The governments of the four China Sea economies of Japan, South Korea, Taiwan and China have run their economies for decades using Shimomuran economics and providing vast flows of no-cost earmarked investment credit to domestic industries from their central banks. That created credit is the fundamental reason for the high growth rates of the China Sea economies, many of which have now enjoyed very high economic growth for decades. (For a Development Bank of Japan Summary of Shimomura’s life, see http://www.dbj.jp/ricf/fellowship/).
2 Bank of Japan (BoJ) Investment Credit Creation was a “Granger Predictive Cause” of Higher Economic Growth The causative link running from investment credit creation into productive output-improving and productivity-increasing projects can no longer be doubted because Richard Werner in his book “New Paradigm in Macro-Economics” has used Granger Predictive Analysis to demonstrate a Granger Predictive Linkage linkage from Bank of Japan credit creation to the resulting rates of economic growth. The Western mindset at all social levels — from paupers to Prime Ministers and Presidents, from economics students to economics Nobel prizewinners, from office juniors in the media to editors, from bloggers to billionaires, have not yet appreciated the enormous implications of Richard’s results. If the past is any guide, because of the great advantage enjoyed by Shimomuran economics, they will eventually get there.
3 Unfocused Excessive BoJ Credit Creation was a “Granger Predictive Cause” of the Japanese Asset Bubble Richard Werner has also used Granger Causative Predictive Analysis to show that the Japanese asset bubble of 1986-91 was funded by excessive credit creation at the Bank of Japan. That bubble was produced by the onward lending of BoJ funds through massive secondary bank lending to companies, which funds then flowed into speculation in land values and stocks and shares because the recipient companies were “investment-exhausted” companies — that is, they no longer had available productive investments to implement, and turned to using surplus loaned funds for gambling on the value of land and buildings and on pre-existing paper assets in the hope of winning these bets. While the early entrants to that gambling process may have won a little, the extent of the sharp rise in property values and shares had no basis in additional earnings, so these values collapsed with massive losses to almost everyone involved, producing a debt overhang in Japanese companies. This event was the initial reason for Japan’s lost generation.
4 The Failure to Create Adequate Credit At the BoJ caused Japan’s “lost decades” The fundamental reason for the nearly two-decades-long continuation of Japan’s economic depression and its “lost generation” was the policy of credit stringency practised by the “Princes of the Yen” during the 1990s and during the first decade of the 21st century, as Richard Werner has also shown in his book of that title.
5 The BoJ activity and Inactivity Were “Granger-Causation” linked to Japan’s Economic Boom, Asset Bubble and Enduring Depression The Bank of Japan’s credit activities therefore lay at the root of all the these three observed economic results — the BoJ investment credit practised from 1946-75 and that policy produced very high rates of national investment and an economic miracle; the BoJ oversupply of purposeless credit funded the 1986-91 asset bubble and indirectly led to the collapse of property values and stocks in 1991; and the subsequent inactivity of the BoJ and the OECD-supported restrictive credit policies imposed by the “Princes of the Yen” made the depression into a lengthy economic disaster. The economic weakness of Japan has only recently been ameliorated by the election of Shinzo Abe and his stated intention, with references to Shimomura, to recreate a “Japan of abundant capital resources” using vast flows of BoJ credit creation for key investments. Unfortunately Shinzo has not yet removed the BoJ’s independence, as he promised to do in his election manifesto, so it remains to be seen if the BoJ will continue to support the new wave of productive investments in Japan or if they will ultimately return to the misery-creating credit restriction policies so usual in the West.
6 The Futility of NeoClassical Economics Most Western economists seem not to understand almost any of the above conclusions. Economics in most of the Western universities seems to have turned into a kind of mathematical dream world based on postulated perfections which do not correspond with any objective reality. This has led to the enthronement of minor economic ideas, such as those of neoclassical economics, as if they were all the truth when the fact is that such ideas have no positive aspect. They do not offer any solutions to our current economic difficulties and they make economics live up to its most baleful description as “the dismal science.” I am reminded of the old joke — “I wanted to be an economist, mum, but it was no good — cheerfulness kept breaking through.” And perhaps mathematical economists need to be reminded of the toast of the pure mathematicians which some aspects of their work resembles — “Here’s to pure mathematics — may it never be of any use to anyone.” The general adoption of neoclassical mindsets is inimical to making further progress in economic understanding and has led to a kind of blind-alley triumphalism when Western economic ideas have not triumphed at all. Any objective comparison of the growth rates of the China Sea economies compared to those in the rest of the world illustrates that.
7 Shimomuran Economics Provides a Better Way Forward Shimomuran economics is entirely different. It offers a positive way out of the neo-classical doldrums and needs to be integrated into the teaching and practise of economics in all universities and at all levels. The Western neo-classical mindset needs to be upgraded to the Shimomuran mindset which offers a new way to shift gear into the production of widespread prosperity and to accelerate the now-essential changes towards the greater funding of investment and innovation leading to a “green economy” and a much more sustainable world.
8 The Inevitable Failure of The Japanese Attempt to Conceal the Significance of Dr Osamu Shimomura the Economist 1910-1989
I could be wrong, but I believe that the Japanese authorities — successive Japanese Governments and the Bank of Japan and the Development Bank of Japan — have all tried vigorously to conceal from the West the significance of the work of Dr Osamu Shimomura 1910-89. That is the only possible explanation for the almost complete absence of the works of Japan’s “most influential post-war economist” in nearly all major national libraries and the university libraries of the West. There may be several reasons for this. First, there are such enormous trading advantages in the practice of Shimomuran economics, and that economic know-how is well worth not sharing, because so long as it is not known in the West it preserves the relative capital advantages of Japan, and these days, the other three China Sea economies. Second, Shimomuran economics is such a powerful technique that it fits Joseph Alois Schumpeter’s description of the most significant innovations — the kind of innovation which is not a marginal improvement on existing understandings but an upward leap, an annihilator of previous industries, a destroyer of the previously successful ways of life and the livelihoods of otherwise funded foreign enterprises. The managers and workers in many British manufacturing industries have experienced that — the previously flourishing industries of motor cycle production, motor vehicles, shipping, steel, and electronic goods were all annihilated mainly by Japanese and also by foreign competition. American industry has had a taste of that too. Shimomuran economics gives an unfair advantage to the nations which practice it.
The neo-classical economists of the West must share the responsibility for these outcomes, for they have been asleep at their posts. I have often found that there is a tinge of Western self-satisfied smugness in its economists, a kind of so-superior intellectual Western racism, which rejects the idea that Asian economists could possibly know more about economics that those in the West. Besides, when non-western economists swallow all of neo-classical economics, they are welcomed in Western universities. Doesn’t that prove that there’s no intellectual racism? Well, no, it doesn’t.
After all, who wins the Nobel Prizes for economics? Aren’t most of them American or European? Doesn’t that mean that the Americans and Europeans understand macroeconomics more thoroughly than the Asians? Sadly not — it may just reflect the limited list of proposed Prize candidates and the Eurocentric cultural assumptions of the judges.
In real life it is results that count, and the nations of the West are losing their pre-eminent places in the sun because their economists do not understand, their media do not report in the light of, and their governments do not practice, Shimomuran economics. Nearly all the Western elites are trapped in a neoclassical mindset which sees no need for any improvement in economic understanding because that mindset serves the elites — but nobody else — very well. And who else matters? Almost everybody else!
In the end, the Japanese can no more hide Shimomura than they could hide the sun. Professor Richard Werner — the first 1991 Shimomuran fellow at the Development Bank of Japan — has advised me, to my astonishment, that he was told nothing about Shimomura by the Japanese. Yet he worked it out for himself, rediscovering and demonstrating the Granger Causative Predictive link running from Bank of Japan investment credit creation to Japanese economic growth, and much else besides. Because that investment credit creation at the Central Bank is the key to more rapid economic growth, Richard has concluded (as Shimomura agued decades earlier) that the Central Banks of all nations must not be independent and must under the control of democratically-elected governments who are elected to deliver successful economic policies. Governments cannot deliver these objectives if the central bank is independent.
An English translation of one of Shimomura’s works about “Basic Problems of Economic Growth Policy” appears to be in the Indian Statistical Institute in Kolkata and in the University of California Rivera library. (Seehttp://books.google.co.uk/books/about/Basic_Problems_of_Economic_Growth_Policy.html?id=DyNjHQAACAAJ&redir_esc=y )That book has allegedly been translated, on demand, by the Japan Development Bank and, I am advised by Richard Werner, does not apparently contain any of the key formulae which are certainly present in Shimomura’s other books. It seems to have been heavily edited and summarised. How on earth could that possibly have happened? What do you think? Why do you think that has happened?
An understanding of Shimomuran economics is not the preserve of any racial or national group. It is best practiced by all mankind and for the benefit of all. May that become so.
9 The required updating of Economic Understanding The inertia which tends to produce “more of the same” — the continued teaching of obsolete and inapplicable economics in Western universities, the continuing application by Western politicians of non-performing poverty-increasing policies, the continued economic weakness of the West which could lead to disastrous hegemonic wars which would benefit no-one — all that needs to be replaced with the rainbow of positive Shimomuran policies for the benefit of all mankind. Even the most cursory examination of the immense opportunities available through the adoption of Shimomuran economics shows how much more effectively economies can be governed. One of the most inventive and innovative people in the world — the British — have lost an Empire that could have been better developed to the great benefit of much of mankind if they had understood Shimomuran economics. The British Empire would, of course, not have stayed together but every part of it whether unified or self-governing would have been much better developed. The entire relative decline of British industry was an unnecessary phenomenon and even now that decline is almost entirely reversible, unfortunately not by the current Coalition Government which seems to think that economics is only about making economies. Another highly innovative and inventive people — the Americans — are about to lose world leadership due to their increasing economic weakness and their foolish commitment to the neo-classical pope of the Chicago boys. President Barack Obama is very badly served by an economics establishment which continues to advocate and practice the “Washington Consensus” around non-government involvement in stimulating industrial development when what could be called the “Tokyo Consensus“ — the Shimomuran no-cost investment credit creation stimulation of rapid invention, innovation and economic growth — has now produced, in the China Sea economies, the largest, most rapidly growing and most significant economic zone in the world. One of the best initiatives of modern times — the ever-greater union of the European peoples — has a government which has failed to show an appropriate duty of care towards all of its people. The Europeans have been treated as if they are inhabitants of a new German Empire rather than the equal members of an ever-greater union. All of that can change for the better. An improved economic understanding is not the prerogative of the government of the China Sea economies but is required by, and is for, all mankind. The risks associated with this new development may be great but the gains to all are so much greater.
Shimomuran economics has the capability of dealing with the current economic crisis of the West, defusing the Chinese challenge, and altering forever the tendency of the privileged to ensure that government actions are taken mainly for their benefit.
Shimomuran economics enables better responses to the credit crunch, for the earlier introduction of the environment-restabilising green technologies, for a shift in energy generation from a carbon basis to renewable, for the more full employment of all the people of the world. And above all, for the acceleration of essential innovations and the sharing of the fruits of individual and group ingenuity and the flourishing of commerce and industry at local level which is essential to the creation of widespread prosperity.
8 Conclusion: The Day May Come These kind of sea changes in economic understanding have happened before. There might be a day, hopefully not in the far future, when the key contributions of the master economist Dr Osamu Shimomura will be recognised in an amended version of what Western economists, media, and the politicians said after the assimilation of the work of Keynes:
“We are all Shimomurans now.”
© George Tait Edwards 2014
For further information on this subject, see http://rethinkingeconomics.blogspot.co.uk/2014/05/shimomuran-economics-and-rise-of-japan_6.html and