February 19, 2015

The Specter of Japan-Like Stagnation

The following article was originally published by U.S. News & World Report on February 19, 2015. An excerpt is below, and the full article can be accessed here

The economist Simon Kuznets used to tell his students that there were four types of countries: developed countries, undeveloped countries, Argentina and Japan. His aphorism pithily captured Japan as the positive outlier, the non-Western country that industrialized in one generation in the 19th century, and rebounded even more quickly after the devastation of World War II. By the 1980s, Japan was a global economic powerhouse, giving us Sony, Toyota and Nintendo, pioneering the bullet train and buying up American real estate. Business leaders the world over scrambled to learn the secrets behind the country’s success.

But Japan has since lost its luster. Today it may be the first major economy feeling the full effects of post-industrialization. It has experienced two decades of little or no real economic growth. With a median age of 45, its shrinking working-age population struggles to support a growing number of elderly. Low-cost imports and robotics have slashed the demand for wage labor. And Japan now suffers from a discernible lack of economic dynamism as a homogenous society with a rigid work culture that continues to be hostile to immigration. Ironically, the very characteristics that once made Japan so successful are now among its biggest liabilities.

Japan’s example serves as a cautionary tale for other industrialized societies, and Europe in particular.