NCPA - National Center for Policy Analysis

Savings Rates In Two Economies Compared

February 6, 1998

Economists frequently point out the disparity between personal savings rates in Japan and the U.S. From 1972 to 1994, Japan's annual average overall savings rate was 19 percent of gross domestic product (GDP) -- but the U.S. rate was just 6.7 percent. Although savings are high there and low here, our economy streaks along, while their's is mired in a recession that has lasted almost seven years.

If savings are so important to economic growth, as nearly every economist believes, why the contradiction?

  • Experts point out that the Japanese depend more on personal savings for their retirement, while Americans depend more on Social Security, pensions and home equity -- none of which show up in U.S. savings data.
  • Some analysts contend that the U.S. invests its savings more efficiently and productively than Japan.
  • While the U.S is reaping the benefits of the 1980s tax cuts, deregulation and corporate restructuring, Japan is sinking under the weight of red tape built up over the decades.

Murray Weidenbaum, chairman of the Center for the Study of American Business, points to the difficulty of starting new business in Japan -- which has about 11,000 separate start-up rules, with thousands more being issued by each of the government's 22 ministries. To take just one example, until just several years ago it was virtually impossible to start up a large retail store. Japan's lifetime employment system makes it hard for labor to change to more productive uses, thus leaving companies with bloated payrolls.

While economists applaud high savings rates, they say that these other factors are also important to creating a vibrant economy.

Source: Charles Oliver, "Is Japan's Savings-Led Economy Still a Model for Rest of World?" Investor's Business Daily, February 6, 1998.


Browse more articles on Economic Issues