The reason was that the trap lay outside the banking system, in the capitalist system as a whole. The rate of profit had fallen to a point in the late 1 980s which precluded further substantial increases in workers' living standards. But that in turn prevented the domestic economy from being able to absorb all of the increased output. A new massive round of accumulation could have absorbed it, but for that profitability would have had to have been much higher than it was. Richard Koo's study of the crisis, The Holy Grail of Macroeconomics, by stressing the hidden debts of major corporations, hints at what had really gone wrong, but fails to ground the problem of insolvency in the long-term decline of profitability.92
The Japanese state did turn to some Keynesian type solutions, with a big programme of public works construction (bridges, airports, roads, etc). Gavan McCormack writes, "With the onset of chronic recession after the bubble burst at the beginning of the 1990s, the government turned to ever larger-and decreasingly effective-Keynesian deficits", and that "Japan's public works sector has grown to be three times the size of that of Britain, the US or Germany, employing 7 million people, or 10 percent of the workforce, and spending between 40 and 50 trillion yen a yeararound \$350 billion, 8 percent of GDP or two to three times that of other industrial countries" .93 According to one estimate the state's share of output increased from an average of 13. 7 percent in the 1984-1 990 period to 15.2 percent in the 1994-2000 period.94
But it was not enough to fill the gap created by the limited stimulus to investment from the rate of profit, as the graph below shows.
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Capitalism in the 20th Century