I remember back in the 1980’s the world marveled at how Japan rose from the ashes of WW2 to become the second largest economy in the world. It’s been referred to as the ‘Japanese economic miracle’. I recall taking business courses in the late 1980s that focused heavily on studying ‘Theory Z’ management.
Then we stopped hearing about Japan in the 1990’s and haven’t heard much about the ‘miracle’ since. What happened?
I asked a similar question a couple of years ago; you might find that discussion informative.
I’m not an expert, but Japan has a good per capita GDP of about $39k in nominal dollars. There really isn’t much room to grow beyond that and most countries drop to 2% GDP growth rates at that level of wealth.
Now everyone is talking about the Chinese miracle.
Real estate bubble burst
Population aged.
China rose.
Population lost confidence.
Country hit its ceiling.
Not just Japan, but the whole developed world is entering unfamiliar economic territory. UIAM, Japanese stocks outperformed U.S. stocks significantly in 2015-2016 and held their own in other recent years. Rather than asking why Japan is different, we might better ask: Is Japan different? Will other developed countries follow its path?
A big difference between U.S. and Japan is the trade balance. Briefly, Americans are going into debt to buy Japanese goods, while the Japanese are happy to save the dollars America sends, and invest them in U.S. stocks and bonds. I’ll let the experts predict who’ll come out ahead a decade or two from now. (Spoiler alert: The incentive for U.S. to devalue its dollar keeps growing. Past U.S. Administrations have pledged to support both the world economy and a strong dollar, but the present Administration is committed to neither.)
As was mentioned in the thread Machine Elf mentioned, women in Japan are still vastly underemployed. Japanese women in general are expected to stop working when they have children, and they’re expected to have children shortly after getting married. Care for aging parents also falls disproportionately on daughters. In recent years, more women have been bucking social convention to enter the workforce, but find themselves held back by a lack of daycare spaces. There’s even a black market for daycares, in which so-called “Baby Hotels” provide unregulated and unaccountable child care.
Prime Minister Abe and other politicians may be paying lip service to gender equality, but until they make real reforms, society and by extension the economy cannot progress.
Part of the problem was that Japan’s rise was due largely to capitalizing on others’ weaknesses. The Japanese electronics industry embraced solid-state (transistors) from the get-go, while the West was still trying to milk vacuum tubes for all of their worth. when I was a kid, my folks had an RCA TV from the early '70s which was still all vacuum tubes; the thing weighed a ton (but had a handle so it was “portable!”) and tubes were fragile and short lived. I still remember the tube tester consoles at the drug store; when the TV started acting up you’d pull all the tubes out and put them on the tester to see which ones were bad. Meanwhile, in 1968 Sony had already introduced the (all solid-state) Trinitron, which was miles better than anything else on the market. Better yet, it rarely broke, and didn’t take several minutes for the tubes to heat up.
The Japanese car industry looked at all of the ways Western cars were flawed (poorly built, unreliable, maintenance/repair intensive) and said “We’ll make cars which are built well and reliable.” They also lucked into the oil crisis by having smaller, economical cars available just as consumers started wanting them. They had years of success while the Western automakers stumbled back and forth trying to compete, but not actually understanding why Japanese cars were better.
Now, unfortunately, Japan is going to have to deal with the fact that China and Korea can do the same things they do, but cheaper.
VisualPolitik recently did this topic (youtube link)
But put simply the Japanese model worked very well for a developing country but then they failed to reform and make the kinds of changes that are needed for a wealthy country to continue to grow. Some of the reasons for this are cultural.
Japan’s GDP is still ranked third in the world, between China (2nd) and Germany (4th). Japan certainly has problems (especially in the upcoming years given the aging population), but it seems to me that its economy is still doing fairly well.
Well that’s GDP in absolute terms, per capita it’s somewhere around 25-30th depending on which of the main measures you use.
That makes sense – thanks for the clarification.
There isn’t? GDP per capita is a measurement of how much total products of value divided by the number of people. So, obviously, better automation is going to allow you to produce more. So would improved management practices that waste less, improved education so that a greater percentage of workers have skills in demand, and so on.
Another issue is that if a certain class of people steals any GDP gains, workers may not receive any incentive signals to produce more. (I’m not sure that’s true : in the USA, the owner class arguably steals all the gains, but there still is a hierarchy between different job productivity levels : more productive jobs do pay more so workers do have an incentive to seek those)
It just seems to disagree with the other model, of accelerating gains.
Economic growth levels tend to level out at 1-3% once a country obtains western levels of development.
I hear your. But why? And is that a temporary thing? If we get AI good enough that we effectively have additional workers in the form of robots, it would be like we had an economy with 10 billion workers or whatever. You would expect to see enormous GDP gains until resource limits start to be hit.
I know. The machine intelligence revolution, which we are in the early stages of, is the third big technology revolution humans will have undergone. The first is the neolithic revolution and the second is the industrial revolution. Each revolution speeds up GDP growth by 10-100x+ times. In agricultural times GDP growth was maybe 0.1% a year. Modern growth rates of 3% a year (or 10% seen in China) would be hard to believe. I think I read a GDP doubling took 200,000+ years in pre-agricultural times, 900 years in agricultural times and about 20 years in industrial times.
So after AI catches on, GDP doubling within a year is possible but who knows what that’ll be like.
But for now, since we haven’t hit that tech revolution, a developed nation’s GDP growth tends to stall at 1-3% a year.
Understood. So viewed that way, 1-3% is actually still pretty steady growth. It just isn’t exponential because the limitations of current robots mean they only can be used in certain places and have a huge setup cost that has to be paid back.
So the very rapid growth before that is a nation going through the tech curve to catch up to ‘developed’ nation’s levels.
I don’t know how much difference this makes, but Japan’s population is actually shrinking. And not by trivial amounts, around 300,000/year. So that’s about 1 million every 3 years, and it’s been going down since about 2010. This, of course is tied in with an aging population, but most developed countries have that. Japan also lacks is any significant immigration that makes up for it.
nm
Cool site! Thanks. 