Japan Can Teach U.S. How to Overcome National Rot
The U.S. is in a period of institutional sclerosis, and more people are noticing it. Even JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon is sounding the alarm. But it’s reasonable to ask whether, despite all its difficulties, the U.S. is still the proverbial best house in a bad neighborhood. Many other rich, industrialized nations are facing their own long-term dysfunction. Europe is politically paralyzed, and much of that region still suffers from high unemployment. If no one else has figured out how to beat sclerosis, maybe it’s inevitable?
Maybe not. There is one large, developed country that has managed to mostly pull itself out of a long period of paralysis. That country is Japan.
Much ink has been spilled about Japan’s seemingly endless dysfunction following the bursting of its real estate and stock-market bubbles in about 1990. Books such as “The Sun Also Sets” and “Dogs and Demons,” and economics papers like Takeo Hoshi and Anil Kashyap’s “Why Did Japan Stop Growing?” recount the story of how the dynamo of the 1980s turned into the sick man of Asia during the 1990s. But although many outside the country seem to think that it’s mired in an eternal “lost decade,” this perception is now out of date. Yes, Japan’s economy has a number of long-term structural problems, most significantly its aging, shrinking population. But in most areas, Japan has overcome its bout of sclerosis, and in many ways is looking healthier than any other major economy.
In terms of gross domestic product, Japan is doing fine. Many people focus on the total GDP figure, or fail to account for inflation, both of which understate Japan’s performance. But the country’s real output per working-age population has outpaced the U.S.'s since 2000, despite the fact that Japan’s working-age population has aged much more.
But in Japan, practically everyone who wants a job has a job. Here’s a comparison of unemployment rates:
But this understates the difference. A lot more of Japan’s population is in the labor force in the first place:
Surprisingly, this is true for women as well as for men. Though women in Japan still haven’t won economic equality in the workplace, they now have jobs at higher rates than their American counterparts.
One might think that Japanese companies are simply employing too many people, reducing profitability in the name of maintaining employment levels. There’s always a bit of this happening, but even so, Japanese companies have managed to improve profitability a lot. Despite a strong currency that tends to hurt export earnings, Japan’s corporations are seeing their earnings grow:
Margins are higher than they’ve been since the Great Recession.
These are the economic stats, but Japan has improved on many social indicators as well. Fertility, once among the lowest in developed countries, and though still well below the replacement rate of 2.1, has begun to inch up:
Japan’s violent crime rate is still legendarily low. And while the country is famed for having a high suicide rate, that has also come down substantially, falling by almost a third during the past decade.
So Japan looks like a society that is healthy not just economically, but culturally and socially as well. How did it accomplish this feat, when it was mired in stagnation for so long? And why has it done better than most of the other rich countries?
One factor is good leadership. After years of trying to deny problems like unproductive workplaces and pervasive sexism, Japan elected leaders who were willing to confront these issues head-on. Prime Minister Shinzo Abe, though a conservative, has pushed to support working women, with both rhetoric and real policy. He has also opened up the country a bit to immigration, especially of the high-skilled variety. Meanwhile, the bureaucracy has started pushing Japanese companies to be more profitable and improve their corporate governance.
But companies themselves have also made these efforts with little prompting. Waves of consolidation have helped raise profitability in industries from autos to banking to electronics. Accounting scandals may be making the front pages, but these are probably a sign that greater transparency is coming to Japan Inc.
In the end, Japan is shaking off its sclerosis simply because the country’s leaders recognized the need to do so. Instead of wasting energy on partisan political battles over health care or culture wars, as Americans have done, Japanese people targeted the real problems that were plaguing the economy and society. It took more than a decade for Japan to collectively realize that the old growth and social models weren’t working, but once the country’s businesses, politicians and households accepted that they were in a hole, they could start to dig themselves out.
Just as Japan’s stagnation offered a warning decades ago, the Japanese revival now offers the hope that the U.S. can do the same in the years to come.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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