1Balancing economic growth with well-being: Implications of the Japanese experience

1 Human and social capital supporting Japanese rapid growth In Japanese and Asian development, human capital was essential, especially in accumulating technology through learning by doing. Social capital also played an important role, through mutual trust within the general public and thorough cooperative behavior among colleagues and between companies that held long-term relationships. However, just like physical capital, human and social capital may become obsolete. Some aspects of society that helped Japan to grow quickly have become obsolete and are being replaced by market mechanism and formal institutions. Social capital has three dimensions. First, it substitutes for markets and institutions, especially in developing economies. Second, it complements markets and institutions. Third, it can be a direct foundation for well-being. The best balance between the economic implications and the direct benefits of human and social capital may be different across countries, depending upon culture and history. This is because there is a substantial degree of institutional complementarity and path dependency in the dynamics of human and social capital. Even with the internationalization of economic activities, differences in human and social capital can remain, and they will put different pressures on future development of technology. Such differences will become an increasingly importan