In Japan, a gengo (the name of an Imperial era) is set for the duration of each emperor’s reign. The current Heisei Era started in 1989. Next year, the name of the next era will be introduced upon the abdication of Emperor Akihito. This year, 2018, falls on the 30th year of Heisei, and the mass media is awash with feature articles and programs looking back on the past three decades.
As I look back on the 30 years of Heisei from the viewpoint of the economy and economic policy, two important lessons emerge. Generally speaking, social security reform, immigration policy and deregulation are cited as key items on the nation’s policy agenda going forward, and the two lessons point to serious problems that need to be overcome as we try to resolve those policy challenges.
‘Catching up’ lost its cachet
The 30 years of Heisei are often described as “the lost” decades. Over this period, Japan’s gross domestic product has increased by a mere 1.2 times — whereas the U.S. and British economies expanded by three times or more. There is no doubt that Japan’s presence in the world declined. However, per capita GDP as measured by purchasing power parity increased by 2.2 times in Japan, compared with 2.5 times in the United States and Britain. Japan’s increase may not have been that strong, but the gap with the U.S. and Britain is not that steep.
Key reasons that growth in Japan’s nominal GDP was lower than in other major economies were the protracted deflation that gripped Japan — and the fact that its population was nearly flat as the nation did not accept immigrants. Over the same period, population grew by roughly 30 percent in the U.S. and 15 percent in the United Kingdom. The 30 years of Heisei were not just a “lost” period, but a period when little action was taken to fight deflation or attract human resources from around the world. And yet people’s living standards did not turn that much for the worse.
The first lesson to be learned from these developments is that Japan as a whole paid little attention to what was happening in the rest of the world. After it embarked on modernization following the Meiji Restoration, the nation was devoted to catching up with the world’s major industrialized powers — and was always sensitive to its comparison with the other economies. But in this era, such perspectives on our part concerning the economy and economic policies appear to have declined considerably. So the first lesson is that our attitude toward learning humbly from the rest of the world has diminished.
This problem can also be observed in Japan’s response to the advent of the Fourth Industrial Revolution in recent years. Perhaps the world’s fastest growing industry over the past decade was the “ride share” business. Companies like Uber in the U.S. and DiDi in China grew so fast in such a short period that their corporate value has either rivaled or surpassed those of Japan’s mega-banks.
In Japan, however, rigid regulations were kept in place to prevent such services from flourishing, due at least in part to strong objections from existing industries that might be affected. In other words, Japan missed an opportunity to build a growing sector as it ignored the examples of other countries.
Japan is often described as a country at the forefront of efforts to deal with a host of policy challenges that will similarly affect others. What the nation needs to do first, however, is revive its spirit for humbly catching up with the rest of the world.
The second lesson, related to the other problem, is that deep thoughts are increasingly absent from policy discussions. Instead, policy decisions are heavily influenced by media opinion polls, or the consciousness of people at large, which in turn is under the strong influence of what’s reported on TV news and variety programs.
Policy discussions during the Heisei Era had the characteristics of being molded by the opinions exchanged on TV news and variety shows. These programs generally feature comedians and others from the entertainment business — people who unfortunately are not well-versed in serious economic policy issues — and as a result engage in fairly emotional discussions on policy matters to formulate what comes to be taken as public opinion.
A typical example is the tax increase carried out in the wake of the 2011 Great East Japan Earthquake. If that was a massive disaster of a once-in-a century scale, the burden for reconstruction should have been spread out over 100 years — under the principle of equalizing the fiscal burden. However, emotional calls for “mutual help” pushed for tax increases even though the economy had been hit by the disaster.
Such policy steps that ran counter to economic principles were frequent during the Heisei Era. After the collapse of the bubble boom in the early 1990s weakened the supply side of the economy, the government at that time ignored the problem and kept on with policies to stimulate demand with heavy spending on public works and other measures. This in turn damaged the government’s fiscal foundation. Instead of pushing weakened companies out of the market, measures were taken to bail them out. This consequently eroded the competitiveness of the entire industry. When the problem of people who have incurred heavy debts to multiple lenders came to the surface, steps were taken to lower the cap on interest rates, instead of reviewing the bankruptcy law. As a result, many moneylenders lost the foundation of their business.
Looking back on these events, we realize that phenomena similar to what’s happening in the United States under the administration of President Donald Trump, who is leading policies in wrong directions by denying free trade for emotional reasons, have also been happening in Japan, albeit to varying degrees. It can be summarized as Japanese-model populism, in which TV news and variety programs have played major roles. Other media outlets such as newspapers, which are supposed to put the brakes on such emotion-driven policies, have failed to engage in adequate policy discussions.
The ‘mixed’ 30 years
Japan’s economy during the Heisei Era was never a “lost 30 years.” Some sectors went wrong, while others made significant improvements. The economy turned for the worse in some periods, but there were also times when reforms propelled the economy upward. It was a mixed 30 years.
Life expectancy in Japan, for example, was surpassed by Hong Kong but is still at the world’s highest level. Much progress has been made in terms of hygiene and medical services. In an era of competition among the world’s major cities, Tokyo has increased its ranks from fourth to third in a comprehensive grading by the Mori Memorial Foundation. Japan is gaining worldwide attention for its urban redevelopment projects.
How we learn from the lessons of the Heisei Era to overcome the problems confronting the nation is the key challenge in the coming post-Heisei years.
Heizo Takenaka, a professor emeritus of Keio University, served as economic and fiscal policy minister in the Cabinet of Prime Minister Junichiro Koizumi from 2001 to 2005. He is a member of the government’s Industrial Competitiveness Council.