Shock Therapy for Japan

The days when Japan seemed to be on its way to world domination are a dim memory. Yet for years, Japan maintained its rank as the world's second-largest economy and kept a wary eye on China as it relentlessly grew. Now, the long expected and long dreaded moment of being overtaken by their continental neighbor has arrived. How government and ordinary citizens respond to their ongoing economic troubles will determine the next half-century of Japanese history. Right now, unfortunately, there is more doubt than confidence that answers can be found.

In one sense, the latest data may seem like much ado about nothing. After all, by nearly every measure, life in Hokkaido and Kyushu is far more pleasant, safe and full of possibilities than in China. Japanese have the world's longest life expectancy; environmental conditions have been dramatically improved since the 1970s; social services are abundant and per capita gross national product is around $39,000, at least 10 times that of China (which is pegged at about $3,600 by the International Monetary Fund). Life in Japan is decidedly not nasty, brutish nor short.

Meanwhile, an enormous mountain of difficulties lurks behind China's shiny curtain, ranging from political fragility to environmental degradation, from massive income inequality to a resurgent and often virulent nationalism. Pictures being circulated around the Internet show a sea of garbage washing into the Three Gorges Dam, carried hundreds of miles by recent rains. There is no social-safety net, especially in rural areas, and almost all medical care is provided only after cash-strapped farmers pay up front. Thousands of buildings remain unoccupied in China's major cities due to overbuilding and a property price boom.

Japanese should not take comfort from the landmines facing China, however. There is clearly something wrong in Japan. The country has limped along economically for most of the past 20 years. So many Keynesian stimulus packages have been tried that it is surprising (if not outrageous) that Japanese politicians would continue to turn to them--yet Tokyo does. Japan still maintains the world's largest investment in research and development, but it is no longer among the leaders in technological innovation. The particular set of government regulations and incentives that helped promote Japanese industry during the 1960s and '70s long ago became a hindrance to market-based development.

The real problem in Japan may be a social one, not governmental or industrial, and therefore much harder to resolve. Every society develops according to its own logic (or illogic), and Japanese society, with all its depth and complexity, has evolved to fit the particular needs of the Japanese themselves. The question is whether these societal structures are too rigid for a globalized economic world, where capital must flow freely, ideas must circulate and consumers must be given a wide menu of choices. Japanese society continues to place strong if not overwhelming emphasis on hierarchy and consensus, which unintentionally dampens the entrepreneurial spirit that drives modern capitalism. In part because of that, the creative energy of many Japanese is diverted into a rich world of personal interests, separate from economic activity.

Other factors compound this. The primary national goal during the post-war era was to catch up with the West. Yet that goal was never tied to a broader vision of why catching up was a good to be desired, or what the good life in Japan should look like. Now, Japanese are slowly turning away from their deeper engagement with the world that marked the 1980s.

At one level, the past decades have been seen as a necessary correction to the excesses of the "bubble era" and the unrealistic expectations that Japan would become the world's next all-around superpower. Yet perhaps the degree to which Japanese were becoming truly international during their heyday was itself overrated. In some ways, the current state of pulling inward may be more normal in the long run of Japanese history. That does not mean, however, that there should be no worry over the fact that fewer and fewer Japanese students study abroad, or that there is still almost no acceptance of long-term immigration and naturalization.

There is yet to be a national debate over Japan's role in the world, how to grow the economy, or how society should look at home, even though the Democratic Party of Japan swept into power in 2009 in part by proposing policies to create a new Japan providing opportunity for all its citizens. Opportunity, from a Western point of view, must include the freedom to innovate, to take chances, to try to change the world around oneself. That spirit seems less evident in Japan today than does a pervasive sense of unease about the future, made all the more bitter by China's rise.

Today's pessimism undoubtedly also would have been heard in the 1860s, when centuries-old Japanese political, social and economic models were collapsing. Out of that chaos, however, the world's first non-Western modernized society and a great power emerged. A veteran Japanese journalist told me over lunch the other day that Japanese act the best when they are shocked. Perhaps losing their coveted economic slot to China will prove the kind of shock that makes Japan take some chances and free the creative energies of its people.

Michael Auslin is a resident scholar at AEI.

Photo Credit: CIA World Factbook

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