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February 09, 2008 

Don't count Japan out just yet 

As China and India garner an ever increasing share of the world’s attention, it has become almost fashionable to discount the future of Japan. The arguments against a significant role for Japan in the twenty-first century are all summarized, more or less, in a recent article in the Washington Post: “For Japan, a Long, Slow Slide” Japan is not the juggernaut that it was in the 1980s. Its population is aging. India and China are growing much faster. Et cetera, et cetera. 

 

These negatives---while not insignificant--- are only half of the story; and this pessimistic piece appropriately pulls its punches: 

Still…..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.  

The author of the article, Blaine Harden, also acknowledges that Japan is still the second largest economy in the world. Yet he notes Japan’s status as number two only in passing. After stunning the world with the “Japanese Miracle” of the 1960s and the “Bubble Economy” of the 1980s, Japan’s current state of slow, steady prosperity inevitably invites predictions of a “decline.” 

We forget just how big Japan was in the late 1980s. There were many pundits in the West back then who believed that this island nation of 127 million people was poised to take over the world. Now Japan is revealed as merely a prosperous country with an agenda appropriate to its size. And this strikes many as anticlimactic. 

Traditionally described as “a shrimp off the coast of China,” Japan Inc. still casts a long shadow. Chinese automobile companies like Chamco make the news because they may become viable players within the next few years. But a Japanese automaker, Toyota, is already poised to become the largest automaker in the world by 2010.  

Japan is not a developing nation; but a member of the G-7. Japanese successes no longer have an air of novelty. While investors and journalists romanticize China and India for what they might become, Japan has already arrived; and it is constantly measured against its best performances of the past. 

Japan’s relative position has indeed slipped since the early 1990s, especially in Asia. (Read the Washington Post article for details.) But this is an example of how raw statistics can be misleading. In the early 1990s, China and India were still economic basket cases, and no one even thought about doing business in Vietnam. While the rest of Asia is indeed rising, this does not necessarily mean the decline of Japan. Japan is already number two in the world. China and India have nowhere to go but up. 

Much has been made of Japan’s aging population. This is a real concern, but hardly unique in the industrialized economies. Germany, Italy, France, Spain and most of Europe are aging significantly faster than the developing world. Russia is experiencing a population decline that has alarmed the Putin government; the direst forecasts put Russia’s population (now 141 million) as low as 70 million by 2050.   

Nor is an aging (or even a declining) population irreversible. Japan’s population growth was flat throughout much of the Tokugawa Period (1615-1867), just prior to Japan’s rise as a major Asian power in the twentieth century. The population of Greece declined during the Greek Dark Age (1100 – 750 BC), only to increase during the subsequent age of the Greek city states.  

Will Japan ever stun us again, as it did in the 1960s or the 1980s? Not likely---at least not in our lifetime. But stunning performances are more difficult to pull off when you’re already close to the top. Japan is not a BRICs country; it isn’t the latest thing anymore. But Japan is still an economic contender; and you can expect it to remain so in the foreseeable future.