Tuesday, February 17, 2009

Japan's Slow Decline

Washington Post


The relative decline of Japan is not surprising. It is running the course of all great powers, from Holland, Spain, France, to England. It cannot rely on old ways that gave them the boost, but must find new ways that makes sense in the new environment. Requiring foreign residents to speak Japanese is a losing strategy. Instead, it should emulate the many successful European countries who lost power in the past, by adapting to the new world power, by learning English and Chinese. Instead of sending its children overseas to other universities to learn English, it should create more English speaking colleges, and attract other Asian students to study in Japan, using English or Chinese. Germany with a smaller population is still a formidable leading economy in Europe and the world. There is no intrinsic reason for Japan to continue its slow decline into obscurity, except the lack of political will and leadership. Leadership does not come from a vacuum. If the people is satisfied in a culture of "obey and don't stick out", they will always accept mediocre leaders instead of demanding dynamic and successful governments. By 2050, Japan will either re-invent itself, or fall to the fringe of families of nations.


Declines in Productivity, Population Combining to Stifle Economic Growth

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.

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 shifting 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 leadership 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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