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Japan’s competitiveness

Japan’s economic competitiveness is slipping, according to the most recent World Economic Forum’s world rankings. Japan came in 10th, continuing its slide from ninth place last year and sixth in 2010.

The results for many areas of the economy were even lower. Considering that Japan remains the third or fourth (if the European Union is considered a single country) economy in the world, the ranking indicates that serious changes are needed to restore Japan’s competitiveness.

Most disappointingly, Japan’s overall macroeconomic environment is ranked 124th out of 144 countries. That ranking is driven down by high public debt, an area in which Japan ranks absolute last. The government’s budget imbalances, along with areas such as financial market development, where Japan ranks 36th, are in need of immediate improvement.

Though the newly reinstalled Liberal Democratic Party government is pushing a policy of investing massively in public works projects as one way to reinvigorate the economy, Japan’s infrastructure is already ranked 11th.

Repairing and maintaining aging infrastructure is important, but money used for pork barrel projects can be better spent elsewhere. Instead of pouring money into infrastructure, more attention could be paid to reforming institutions, which rank 22nd, and working to relieve debt and restore some balance to budgets.

Japan also ranks particularly low in government policy stability, tax rates and bureaucratic efficiency.

So far, little mention has been made of these particularly weak points of the economy, but progress depends on consistently applied solutions to these problems.

On the positive side, Japan’s economy has many factors in its favor. For overall innovation, Japan ranks fifth. For business sophistication, Japan comes in at the top. Japan’s markets are well developed, ranking fourth in the world. Domestic consumption accounts for 83.5 percent of Japan’s gross domestic product.

For education, Japan ranked 21st, with slightly higher rankings for primary education than for higher education and training.

Goods markets and labor markets are essentially sound, coming in at 20th for both. Technological readiness ranks 16th, a bit lower than expected. The goods market was lowered because of agricultural imports. For health, Japan comes in at the top of the world, an important economic issue with serious consequences as the population grays further.

Those positive elements show that Japan’s economy is far from hopeless, but needs specific support in key areas. More than other countries, Japan had huge inconsistencies, coming in at the top in many areas like health, but last in others like debt. Those inconsistencies can be resolved with careful attention, greater focus on specific problem areas and less reliance on old-style fixes.

  • David Pert

    Ageing population and the worlds highest public debt is never a great statistic. What makes matters worse is lack of Children. Sadly it will be the Children later that will need to pick up the bill. Though I do not believe this is sustainable and will ultimately mean that healthcare will begin to loose its quality coupled with other public sector areas.

    Taxes are a means to improve foreign investment, though Korea, China and SE Asia seem to be the best places to invest.

    Japan must begin to realise that there is nothing they can do other than embrace the changes that are taking part and accept that there time has come to slip down the world rankings.

  • http://www.facebook.com/AlexFourAC Alex Four

    Why is this a problem? Who cares about economic competitiveness?

    Does more of it mean more happiness?