Japanese Economy (Past · Present · Future)

Author: Tanaka Keizō
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, conducted an in-depth analysis of the reasons behind the sharp decline in Japan's rapid growth, which was once hailed as the post-war miracle, in his book "The System That Led Japan to Decadence." 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 fostering growth, resulting in a "dual economy" where industries with vastly different productivity levels coexist. In Japan, the successful system of the past has now decayed 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, though numerous, is weak and lacks a unified understanding of what constitutes reform or what its goals should be. As a result, whether it is the Liberal Democratic Party (LDP) or the opposition, both seek "painless reforms," making it impossible to perform "major surgery" on Japan's current system. He believes that Japan must undergo a "systemic transformation," akin 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 accomplished. To achieve this, the electoral system must be reformed, the proportional representation system, which encourages 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 ensure peaceful power transitions. However, in 1993, the Japanese 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 gravely mistaken. 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 Trends" 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 decline in Japan's global economic standing is due to several factors: the post-war generation, through sheer hard work, built Japan's world-class economic status, but the younger generation that followed is unwilling to endure the hardships; 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 low birth rate and high living standards have led to an aging population that surpasses other countries. By 2020, over a quarter of Japan's population will be over 65 years old; although the average workday has decreased, top executives often work excessive hours. In 1993, the average weekly work hours in Japan fell below 40 for the first time, but while lower-level employees worked fewer hours, top executives were overworked, leading to high mortality rates. Human, material, and information resources are excessively concentrated in Tokyo, but in modern urban planning, cities must be reasonably decentralized and distributed 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. The primary concern is whether Japan can undertake the necessary structural reforms to regain its former economic vitality and slow its decline, which contrasts sharply with other East Asian economies, 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 "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, then-President Jimmy Carter neglected manufacturing in favor of the service sector, allowing Japan to take over the world's throne in industries like steel and automobiles and 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 and revitalize struggling domestic sectors. The term "international competitiveness" gained traction and became widely used. 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 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 fiber communication technology to 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 has significantly boosted 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 improving U.S. industrial competitiveness. The U.S. also placed semiconductors in the category of critical strategic industries and established the Semiconductor Technology Council (STC) in 1994, bringing together government and industry to strategize on strengthening 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 of prosperity from the early 1990s onward. Former member of the Japan Industry Competitiveness Council, Katsuyoshi Kozono, pointed out that the U.S. recovery began with the revitalization of its manufacturing sector.
Mortimer B. Zuckerman, editor-in-chief of U.S. News and World Report, noted in 1998 that the U.S. economy had grown for eight consecutive years, showing signs of surpassing both 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. Zuckerman stated, "The 21st century will still be America's century." I believe that the sustained prosperity of the U.S. economy and its resurgence in 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.
II. The Future of Japanese Manufacturing and Its Implications
Contrary to the U.S. economy's sustained growth since the early 1990s, Japan's economy has been in a state of stagnation and decline for over a decade since the burst of its bubble economy in the early 1990s. One of the key indicators of Japan's long-term economic downturn 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 and processing sector is also being challenged by other Asian countries and regions. A survey conducted by the Industrial Technology Institute of the Ministry of International Trade and Industry (MITI) in December 1996 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, by Taiwan in electronics, by China in electronic machine assembly, and by Singapore in research and development, completely losing its advantage in production and processing technologies.
Facing the severe decline in the competitiveness of 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 communication, logistics, talent cultivation and exchange, international services, business support services, new manufacturing technologies, biotechnology, aerospace, and marine development. The 15 new growth areas Japan has identified for the early 21st century show that these industries have a far smaller ripple effect on related sectors 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 Council, 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), Ikujiro Imai. The council was tasked with studying solutions to Japan's declining industrial competitiveness. However, this is no easy task. Starting in fiscal year 2003, major Japanese electrical and steel companies increased their investment in research and development (R&D)