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For Japan, a Long, Slow Slide
Declines in Productivity, Population Combining to Stifle Economic
Growth
Wa****ngton Post
Sunday, February 3, 2008; A17
TOKYO -- As the United States frets noisily about a recession, Japan
is quietly enduring a far more fundamental economic slide, one that
seems irreversible.
This country, which got rich quick in a postwar miracle of
manufacturing and alarmed Americans by buying up baubles such as
Rockefeller Center, is steadily slipping backward as a major economic
force.
Fifteen years ago, Japan ranked fourth among the world's countries in
gross domestic product per capita. It now ranks 20th. In 1994, its
share of the world's economy peaked at 18 percent; in 2006, the number
was below 10 percent.
The government acknowledged last month what has long been obvious to
economists and foreign investors, if not to the Japanese public and
many politicians. The minister of economic and fiscal policy, Hiroko
Ota, told parliament that Japan could no longer be described as a
"first-class" economy.
"I have a sense of crisis because Japan has not nurtured industries
that will grow in the future," said Ota, who offered no specific
remedies for the crisis.
Japan is still the world's second-largest economy, as measured by
gross size, although the island nation has been surpassed by China in
purchasing power. In coming decades, the economies of China and India
will dwarf Japan's, according to many projections. By 2050, Japan's
economy will be about the size of Indonesia's or Brazil's, according
to a study by PricewaterhouseCoopers.
Japan's slide relative to other major economies is not a tabloid tale
of suddenly squandered riches. It is rather an insidious petering out
of growth, productivity and innovation -- and of political will to
stop the slippage.
The slide has dovetailed with another quietly insidious crisis -- the
petering out of the population. Japan has the world's highest
pro****tion of elderly people and the lowest pro****tion of children.
By 2050, population decline will have reduced economic growth to zero,
according to the Japan Center for Economic Research. Seventy percent
of the country's labor force will have disappeared.
The undertow is already being felt here. Supermarket and department
store sales have declined for 11 consecutive years. Toyota now is
arguably the world's largest carmaker, but sales of new cars of all
brands in Japan peaked 18 years ago and have been falling steadily
since then.
Still, with the exception of increasing poverty among the elderly in
shrinking rural towns, this remains a remarkably comfortable middle-
class country, with good health care and infrastructure and a low
crime rate.
Unemployment is at a 10-year low of 3.9 percent, although wages are
stagnant or declining. Thanks to six consecutive years of (relatively
slow) growth, the panic and deflation that accompanied the bursting of
Japan's real estate bubble in the 1990s are gone.
"People here are rich, happy, safe and clean," said Oki Matsumoto,
chief executive of Monex Inc., an Internet investment company. They
also have more savings in the bank than residents of any other major
wealthy country.
And that is precisely the problem, according to Matsumoto and many
others who worry about Japan's future.
"Although the situation is not good, because it is not so bad, people
from top to bottom remain indifferent," said Minoru Morita, a
political analyst in Tokyo. "The leaders in this country don't expect
too much and they are very good at adapting to a new environment, even
if that means a downward spiral."
Economists here say that although Japan's economy is growing, it is
not growing nearly fast enough to keep pace with other countries,
especially booming China and much of the rest of Asia.
Japan, in many ways, continues to keep out foreign capital and foreign
management. It ranks last in foreign direct investment among the 30
members of the Organization for Economic Cooperation and Development,
and second to last in venture capital investment.
Its market for initial public offerings is shrinking because of
onerous regulation, according to the Nihon Keizai ****mbun, the
country's leading financial newspaper.
As stock markets boomed across the rest of Asia last year, stocks here
declined by nearly 12 percent. They are off another 11 percent so far
this year. Two major investment firms here say Japan has fallen into
recession.
Many foreign investors are pulling their money out of Japan and
looking elsewhere for good long-term return, said Hiromichi ****rakawa,
chief economist in Tokyo for Credit Suisse.
"Japan has failed to generate any interesting investment themes," he
said. "Inside this country there is a very limited sense of urgency."
****rakawa says there are good reasons to be urgently concerned, even
about the one area of Japan's economy that remains relatively strong:
manufacturing.
"Over the medium to long term, I think that Japanese manufacturers
cannot survive because of international competitive pressures," he
said.
In the cl***** he teaches at Tokyo's Keio University, Shumpei Takemori
compares Japan's passive acceptance of economic slippage to that of a
frog swimming in a dish of slowly warming water. "Our problem is that
the frog is already boiled," said Takemori, a professor of economics.
"It doesn't have enough energy to jump."
A jump toward restructuring did occur here after the bursting of the
bubble in the 1990s.
Junichiro Koizumi, prime minister from 2001 to 2006, moved more
aggressively than any postwar Japanese leader to overhaul the banking
system, deregulate big business and open up the economy. His
government convinced many investors that "Japan is back," and the
stock market rebounded.
But under his successors -- ****nzo Abe and now Yasuo Fukuda -- the
momentum for change has stalled. In recent months, there has been re-
regulation.
New building codes hobbled the home-building industry, sending housing
starts last fall to a 40-year low. New lending regulations created a
credit squeeze for small businesses. For the first time since 1990,
Japanese companies are increasingly buying each other's shares to
stave off acquisition by foreign companies, according to research done
by Nomura Securities.
Japan's foreign minister, Masahiko Komura, said last month that the
government might consider requiring long-term foreign residents to
prove proficiency in speaking Japanese, a suggestion that spooked
foreign businessmen here.
Regardless of government policy, some downward drift of Japan from its
lofty economic perch is natural and inevitable, according to
economists and business leaders.
Japan's spectacular flush of manufacturing wealth after World War II
was, in many ways, "lucky," said Matsumoto, the investment company
executive, who is a student of Japanese economic history.
"The government took a huge bet on a few strategic industries -- like
steel and automobiles -- and it worked," he said. "It took our economy
up to second place in the world. It is totally abnormal for a country
with 127 million people."
Citing the rise of China and India, Matsumoto says global capitalism
is ****fting patterns of wealth creation in a way that more closely
links a country's gross domestic product with the size of its
population.
What concerns political and economic analysts is that many Japanese
politicians -- and the voters they represent -- do not understand how
wealth is being created in the 21st century.
"The current leader****p of Japan came of age during the incredible
success after World War II," said Matsumoto. "They think that what
worked then will work forever."
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