Japanese Economy: Past, Present, and Future

Author: Tanaka Keizō / Country:
Publisher:
Publish Date: 2004-01-01
Features:
2. Richard Katz's Viewpoint
Richard Katz, a senior American expert on Japan and visiting professor at the State University of New York, provides an in-depth analysis of the reasons behind the sharp deceleration of Japan's rapid growth, which was once hailed as the post-war miracle, in his book The System That Made Japan Corrupt. His diagnosis of Japan's current "illness" can be summarized in one sentence: since the 1973 oil crisis, Japan has shifted its economic growth policies from protecting the weak to promoting growth, leading to a bizarre "dual economy" where industries with vastly different productivity levels coexist. In Japan, the successful system of the past has now become corrupt but continues to operate. He argues that the primary reason Japan is in its current predicament is its chaotic politics. Among Japan's political parties, reformists and conservatives are mixed, and the opposition parties are numerous but weak, lacking a unified understanding of what reform is or what its goals should be. As a result, whether it is the Liberal Democratic Party (LDP) or the opposition, they all seek "painless reform," making it impossible to perform a "major surgery" on Japan's current system. He believes that Japan must undergo a "systemic transformation," similar to the shift from Mao Zedong's system to Deng Xiaoping's system in China, to solve its own problems. Long-standing institutions cannot be overturned overnight. This process will likely take 10 to 20 years. Only when reform-minded politicians emerge and their leadership gains public trust can such a major transformation be completed. To achieve this, the electoral system must be reformed, the proportional representation system, which has led to the proliferation of small parties, must be abolished, and the one-party dominance of the LDP must end. Instead, two major parties—conservative and progressive—representing the interests of the broad middle class should be established to enable a change in government. However, in 1993, Japan's business community, which supported the split of the LDP, now supports a coalition government between the LDP and the Liberal Party. This move by the business community is deeply misguided. As long as Japan's chaotic political and financial situation persists, Japan's systemic transformation will not succeed.
3. John Naisbitt's Viewpoint
John Naisbitt, an American futurist, noted in his 1996 book Asia's 2000 that "signs indicate that Japan's economy has reached its limit and is showing signs of decline." He stated, "Japan's economic growth has peaked, and its relative economic position in Asia and the world is declining." The reason for Japan's declining global economic status is that the post-war generation, through sheer hard work, built Japan's world-class economic standing, but the younger generation that took over is unwilling to endure the hardships. Excessive regulation has stifled Japan's economy. For example, Japan pioneered mobile communications systems, but strict control over their development allowed the U.S. and Europe to surpass Japan later. Gender and age discrimination remain widespread, and Japan's population is aging faster than other countries due to low birth rates and high living standards. By 2020, over a quarter of Japan's population will be over 65. Although the average workday has decreased, top executives still work excessively, leading to high mortality rates. Human, material, and information resources are overly concentrated in Tokyo, while modern urban planning requires rational decentralization and layout to achieve overall coordination and efficiency.
4. The Viewpoint of the U.S. Central Intelligence Agency (CIA)
In its special report Global Trends to 2015, released on December 18, 2000, the U.S. Central Intelligence Agency (CIA) pointed out several uncertainties regarding Japan's future. First, it questioned whether Japan could undertake the necessary structural reforms to regain its former economic vitality and slow down its recessionary pace, which contrasts sharply with other East Asian countries, especially China. Over the next 15 years, Japan's economic power will be stronger than in the 1990s, but its relative importance in the global economy will decline. Most experts believe that Japan will struggle to maintain its position as the world's third-largest economy by 2015. The Japanese government has not shown a proactive stance in pushing for the difficult economic reforms needed to control the gradual loss of its leadership role in Asia. The report describes Japan as the "world's third-largest economy." I believe this ranking is based on Gross National Product (GNP) adjusted for Purchasing Power Parity (PPP). In 1999, Japan's PPP-adjusted GNP was $3.0429 trillion, ranking third in the world, behind the U.S. ($8.3501 trillion) and China ($4.1122 trillion). In the 1950s and 1960s, the U.S. economy experienced unprecedented prosperity, with its steel, automotive, and other industries dominating global production. However, from the late 1970s to the early 1980s, President Jimmy Carter neglected manufacturing development in favor of the service sector, allowing Japan to take over the throne of global manufacturing leaders and become a major contributor to the rapid rise in U.S. trade deficits. In this context, starting in the mid-1980s, numerous think tanks began studying how to enhance the international competitiveness of U.S. industries and revitalize struggling domestic sectors. The term "international competitiveness" gained prominence as a result. In 1985, the U.S. established the President's Commission on Industrial Competitiveness, chaired by President Ronald Reagan, and published the highly influential Yang Report, which outlined strategies to strengthen U.S. industrial competitiveness. In 1988, Senator Al Gore visited Japan to investigate the roots of the decline in U.S. industrial competitiveness. In Japan, he discovered that Nippon Telegraph and Telephone (NTT) was implementing a massive plan to introduce optical fiber communication technology into households by 2015, aiming to transform Japan into a "highly informatized archipelago." Upon returning to the U.S., Gore proposed building a high-speed information communication network. In early 1993, President Bill Clinton announced the federal government's "Information Superhighway Initiative," which Vice President Gore actively promoted. The U.S. far outpaced Japan in building its information superhighway, significantly boosting related industries. In 1989, a research team from the Massachusetts Institute of Technology (MIT) conducted a thorough analysis of Japanese and German industries and published Made in America, offering numerous recommendations for enhancing U.S. industrial competitiveness. The U.S. also prioritized semiconductors as a strategic industry, establishing the Semiconductor Technology Council (STC) in 1994, where government and industry collaborated to strengthen semiconductor competitiveness. The STC was chaired by Intel's honorary chairman, Robert Noyce, with the Deputy Secretary of Defense serving as vice chair, and members including deputy secretaries from the Department of Commerce and the Department of Energy. Through the joint efforts of the U.S. government and industry, the U.S. regained its dominance in manufacturing, reclaiming its throne in industries like semiconductors and automobiles. Steel production surpassed Japan's in 1998. The U.S. experienced a decade-long boom from the early 1990s. Former member of the Japan Industry Competitiveness Conference, Katsuyoshi Kanda, noted that the U.S. recovery began with the reconstruction of its manufacturing sector.
Mortimer B. Zuckerman, the publisher of U.S. News and World Report, pointed out in 1998 that the U.S. economy had been growing for the past eight years, showing signs of surpassing the "German miracle" and the "Japanese miracle." All indicators—GDP, capital spending, national income, stock market, employment, exports, and consumption—were rising, while unemployment, inflation, and interest rates were falling. This success was not accidental. He stated, "The 21st century will still be America's century." I believe that the sustained prosperity of the U.S. economy and its improved international competitiveness since the mid-1980s, especially after the end of the Cold War, are the results of its concerted efforts to enhance the competitiveness of its industries, particularly manufacturing.
II. The Future of Japanese Manufacturing and Its Implications
Contrary to the 10-year economic growth of the U.S. since the early 1990s, Japan has been in a prolonged period of economic stagnation and decline since the burst of its bubble economy in the early 1990s. One of the key manifestations of Japan's long-term economic downturn is the severe decline in the international competitiveness of its leading industries. Currently, Japan has fallen far behind the U.S. in high-tech industries, and its dominance in the assembly and processing sector is also being replaced by countries and regions in Asia. A survey on East Asian industrial technology trends conducted by the Industrial Technology Institute of the Ministry of International Trade and Industry (MITI) in December 1996 concluded that by the early 21st century, Japan would be surpassed by South Korea in semiconductors and steel, by Taiwan in electronics, by mainland China in electronic machine assembly, and by Singapore in research and development, completely losing its advantages in production and processing technologies.
Facing the grim reality of declining competitiveness in its leading industries, the Japanese government, since 1996, has identified 15 areas as new growth sectors for the early 21st century: housing, healthcare and welfare, lifestyle culture, urban renewal, environmental protection, energy conservation and new energy development, information and communications, logistics, talent cultivation and exchange, international services, business support services, new manufacturing technologies, biotechnology, aerospace, and marine development. These 15 areas, as identified by Japan, show that they have a far smaller ripple effect on related industries than the automotive industry. However, the automotive industry in Japan has changed dramatically. Some observers note that by the 21st century, only Toyota and Honda will remain among Japan's automakers.
To strengthen Japan's industrial competitiveness, in March 1999, Japan established the Industry Competitiveness Conference, chaired by Prime Minister Morihiro Murayama and comprising 35 members, including 18 cabinet ministers such as the chief cabinet secretary and the minister of international trade and industry, as well as 17 representatives from civil society, such as the president of Keidanren (Japan Association of Corporate Executives). The conference aims to address the decline in Japan's industrial competitiveness. However, this is no easy task. To enhance corporate international competitiveness, major Japanese electrical and steel companies began increasing research and development (R&D) expenditures starting in fiscal 2003.