C ARLO D WEK
Oriental Stagnation
At first sight, the Japanese Economy makes no sense. It is the third largest in the world, with a GDP of nearly $5 trillion, lagging only behind the beasts of China and USA with a fraction of their population. Its infrastructure is considered some of the best in the world and the economy has produced global leaders in technology, automobiles and finance. Yet despite these impressive figures, it has been in deep stagnation ever since 1990. Real GDP has grown a mere 15% since the trough of its 90s depression in 1999. By comparison, in the same period the US economy has grown 36%13.
GDP (constant 2010 US$)
The Japanese government has tried desperately to introduce a wide range of solutions, reflecting how deep- rooted and wide-spread the problems are. These problems can be argued as coming hand-in-hand: symptoms of one another. It all kicked off during the Japanese recession of the 1990s. After years of “miraculous” prosperity, everything came crashing down after a banking crisis, exposing Japan’s structural problems. At first, it was believed that the ‘Lost Decade’ of the 90s was due to the huge deleveraging after decades of borrowing. However, the 2000s came along and it became obvious the problems were deeper than that. A dysfunctional labour market and outdated business practises mean Japanese businesses could not become profitable enough to compete internationally. Culturally, it is more important to take care of workers than to make money for shareholders. Therefore, profits are spent on raises and benefits for workers rather than
investment. In addition, ‘zombie corporations’ are kept alive as firms are unwilling to downsize or fire unproductive departments, even in times of recession. There is also very little profit incentive for workers. According to the Economist, Japans’ executives receive about a third of the rest of the developed world in bonuses14. All this seriously damages profits and productivity. Mergers and takeovers are also more rare thanks to complex regulation and a lack of shareholder rights, leading to inefficient industries where companies are unable to expand their operations2. A lack of shareholder influence has also led to boards with very few
13 http://data.worldbank.org/indicator/NY.GDP.MKTP.KD?end=2015&locations=US-JP&start=1989&view=chart 14 https://www.economist.com/news/business/21653638-prospects-shaking-up-japanese-firms-have-never-looked-so- good-winds-change
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