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Noah Smith

Japan's Productivity Puzzle

Shinzo Abe won't accomplish much without labor reforms.
Tough choices ahead.

Tough choices ahead.

Photographer: Kiyoshi Ota

One of the most important jobs for Japan, and for the administration of Prime Minister Shinzo Abe, is to boost private-sector productivity. Japan has been a productivity laggard for years: Outdated business practices are endemic, especially among companies that serve the domestic market and are shielded from international competition by trade barriers.

Abe just announced a new raft of measures to boost productivity, but they don't look very significant. The new corporate governance code, however, is more encouraging. Shareholder capitalism is already making inroads in Japan, and there is an increasing focus on profitability. The Economist has a great rundown of the ways in which Japanese corporations are finally starting to act more like corporations in the rest of the world. One promising sign is that many companies are finally looking to unwind their cross-shareholdings, which discourage corporate shakeups and lead banks to prop up zombie companies.