Commentary / Japan

A time to reconsider economic greatness

by Shihoko Goto

It’s easy to get mired in all the negative factors bogging down the Japanese economy. An aging population and high debt levels are all too familiar laments echoed by analysts who have followed the country over the decades. Disheartening too is the fact that the demographic and fiscal challenges that have been so long in the public consciousness have yet to be resolved. In fact, they have only gotten much worse over the years.

Still, as Japan looks to keep its competitive edge in the global economy, it should also step back and reconsider what the definition of economic success actually looks like, whether it can play a role in reassessing how to define prosperity and whether it can be a nation that inspires others to follow.

In short, as Japan frets about the possibility of slipping from third place in the global GDP ranking, can its standing and international appeal remain high if measured by a different yardstick?

While Japan’s population is aging the most rapidly and its birthrate is one of the lowest in the world, the fact that other industrialized nations face a similar challenge at a somewhat slower pace has propelled Tokyo to become the pioneer in dealing with a global phenomenon.

This has been seen by some to be an opportunity to showcase Japan’s strengths for the 21st century, as the shrinking pool of workers also coincides with greater automation, connectivity and data availability. The Fourth Industrial Revolution’s challenges of increasing efficiency through technology on the one hand and causing mass worker displacement on the other could actually be a win-win for a society that has fewer and fewer people of working age.

There is, however, an inherent weakness to the argument that robotics and automation could be the solution to a shrinking population. One key factor is simply the rapid rate of depopulation. With less than 100 million Japanese expected to be living 30 years from now, down from 127 million, and nearly one-third of them being over the age of retirement, there is simply a limit as to what automation and artificial intelligence can do to make up for human capital.

The other major issue, of course, is that even with more people being healthier and being willing to work well beyond the current retirement age of 65, revenue to provide for the costs of the elderly population will be severely strained.

Fear of what may come and fear of no longer being able to move up the income ladder have led to growing unease, not only in Japan but across industrialized countries. Given the challenges to global growth, can Japan be a leader in easing basic universal economic concerns, such as fear about being left behind in a rapidly changing society or being vulnerable to technological shifts, and anxiety about social change?

Certainly, China’s growth model has been effective in heralding an unprecedented pace of economic expansion, but its disregard for privacy and free speech has failed to make it an attractive example for other countries to follow suit.

At the same time, the free market model espoused by the United States has begun to lose its luster, especially as it has encouraged a more winner-take-all approach to growth and there is growing wariness of a widening wealth gap there.

Even though Japan is now facing nearly two decades of lackluster growth as its fiscal challenges grow, the political leadership has shied away from strengthening the government’s role in providing a strong social safety net as well as universal health care and high-quality public education nationwide.

Meanwhile, the commitment to prioritize investing in the common good remains, including infrastructure development, particularly in public transportation.

Japan’s success therefore may well be less about remaining the third-largest economy in terms of GDP. Rather, it could represent an alternative path for growth and defining economic success amid a growing tide of populism worldwide and fears of being left behind by technological advancements and global integration.

That would require Japan to have confidence in gauging its own success, and being less driven by conventional statistics, including the GDP ranking.

On the trade front, Tokyo has stepped up and dealt with the shifting realities of the global commercial landscape. By ensuring that the Trans-Pacific Partnership did not falter even after the U.S. withdrawal by spearheading the creation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Japan has not only succeeded in remaining a powerful trading nation, it has emerged as a strong advocate for keeping multilateral trade and the spirit of multilateralism alive.

At the same time, Tokyo is moving forward with concluding a bilateral trade deal with Washington, even when the direct economic benefits are unclear, given the practical political rationale of ensuring strong U.S.-Japan relations. Japan is thus championing the spirit of multilateral cooperation on one hand and demonstrating the pragmatism needed to keep alliances strong on the other through its decisions over trade agreements.

Japan should also be able to espouse an ideological as well as pragmatic approach to growth. As the world’s third-largest economy and armed with capital ripe for investment, Japan remains an economic powerhouse equipped with the influence that comes with money. That influence could be used not only to highlight some of Japan’s greatest strengths, including its well-educated workforce, solid social safety net, political stability and extensive infrastructure, but to promote them as a means to define success.

Diversifying ways in which to measure success at the national as well as personal level could well lead to a more meaningful way to define spending priorities. Japan may well be equipped to fulfill that leadership role.

Shihoko Goto is deputy director for geoeconomics and senior Northeast Asia associate at the Wilson Center’s Asia Program.

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