Japanese Economy: Past, Present, and Future

Author: Jinmei Tanaka
Publisher:
Publish Date: 2004-01-01
Features:
2. Richard Katz's View
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 decline in Japan's rapid post-war economic growth 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 "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 is numerous yet weak, lacking a unified understanding of what constitutes reform or its goals. As a result, neither the Liberal Democratic Party (LDP) nor the opposition is pursuing "painless reforms," making it impossible to perform a "major surgery" on Japan's current system. He believes that Japan must undergo a "systemic transformation" similar to China's shift from Mao's system to Deng Xiaoping's. Long-standing institutions cannot be overturned overnight. This process will likely take 10 to 20 years. Only when reform-minded leaders emerge and gain public trust can such a major transformation be achieved. To achieve this, the electoral system must be reformed, the proportional representation system that allows small parties to thrive must be abolished, and the one-party dominance of the LDP must end, establishing two major conservative and progressive parties that represent the interests of the middle class. This will 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 business landscape persists, Japan's systemic transformation will not succeed.
3. John Naisbitt's View
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 beginning to show signs of decline." He stated that Japan's economic growth has plateaued, and its relative economic position in Asia and the world is declining. The reasons for Japan's declining global economic status are: the post-war generation, through sheer hard work, built Japan's world-class economic standing, but the younger generation that followed is unwilling to endure hardship; excessive regulation has stifled Japan's economy. For example, Japan pioneered mobile communication systems, but strict controls on their development allowed the U.S. and Europe to surpass Japan later; gender and age discrimination remain widespread; Japan's population is aging more rapidly 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 years old; although the average workday has decreased, top executives still work excessively, with 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. U.S. Central Intelligence Agency's View
The U.S. Central Intelligence Agency (CIA) published a special report titled Global Trends to 2015 on December 18, 2000, noting several uncertainties about Japan's future. First, it questioned whether Japan could undertake the necessary structural reforms to regain its former economic vitality and slow its declining growth rate compared to 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 states that Japan is currently the "third-largest economic power in the world." 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 world's top positions in steel, automobiles, and other industries, becoming 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 improve the international competitiveness of U.S. industries, particularly manufacturing, to revitalize struggling domestic industries. The term "international competitiveness" emerged and gained widespread use. 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, outlining how to enhance 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 launching a massive plan to introduce optical 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. "Information Superhighway" project far outpaced Japan's efforts and played a significant role in driving related industries. In 1989, a research team from the Massachusetts Institute of Technology (MIT) conducted a thorough analysis of Japanese and German industries, publishing Made in America, which offered many key recommendations for improving U.S. industrial competitiveness. The U.S. also designated semiconductors as a critical strategic industry, establishing the Semiconductor Technology Council (STC) in 1994, where government and industry collaborate 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 coordinated efforts between government and industry, the U.S. regained its dominance in manufacturing, reclaiming its top positions 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 Council, Katsuyoshi Masuda, noted that the U.S. recovery began with the revitalization of manufacturing.
Mortimer B. Zuckerman, editor-in-chief of U.S. News and World Report, stated in 1998 that the U.S. economy had grown for eight consecutive years, showing momentum to surpass 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 argued: "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 are the results of its efforts since the mid-1980s, particularly after the end of the Cold War, to enhance the competitiveness of its industries, especially manufacturing.
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II. Prospects for Japan's Manufacturing Sector and Its Implications
Unlike the U.S., which experienced a decade of economic growth from the early 1990s, Japan has been in a prolonged period of 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 sluggishness is the sharp 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 sector is also being challenged by other Asian countries and regions.
A 1996 survey by the Industrial Technology Institute of the Ministry of International Trade and Industry (MITI) on industrial technology trends in East Asia concluded that by the early 21st century, Japan would be surpassed by South Korea in semiconductors and steel, Taiwan in electronics, mainland China in electronic assembly, and Singapore in R&D, completely losing its advantages in production and processing technologies.
Facing this grim situation, 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, have a far smaller ripple effect on related industries than the automotive industry once did. 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 Industrial Competitiveness Council, chaired by Prime Minister Morihiro Murayama and comprising 35 members, including 18 cabinet ministers (such as the Director-General of the Cabinet Office and the Minister of International Trade and Industry) and 17 representatives from civil society (including the president of Keidanren, Keizoku Keizai Shinkōkai). The council was tasked with studying how to address Japan's declining 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...