The bubble burst and stagnation of Japan
Prelude to the bubble The Japanese economy, devastated by the destruction from World War II, came back strongly in the 1950s and the 1960s. Figure 27.1 presents the evolution of real GDP growth rates. Between 1956 and 1972, the average annual rate of growth was 9.3 percent.2 This impressive growth ended in 1973 when the first oil crisis hit. In 1974, Japan recorded negative growth, as did most of the world economies. After this, it entered an era of “steady growth,” with real GDP growth rates between 1975 and 1985 averaging 3.8 percent. Retrospectively, the oil crisis was merely a trigger. The growth deceleration mirrored a deeper structural change. Due to the rapid technological catch-up in the 1950s and 1960s, there was little room for Japanese firms to grow through further foreign technology adoption. They now needed to develop their own frontiers, which is an inherently more difficult task. This also meant a new, potentially decisive role for the financial market: finding borrowers with promising new projects and truly innovative ideas. The question was whether the market was really up to the job.