Can Japan Strengthen Its Industrial Competitiveness?


This is a guest post by Charlie Wagner, a research intern at the New America Foundation/American Strategy Program.
When Japan’s asset bubble burst in 1990, Japan’s real estate market – once the world’s most expensive – collapsed. Trillions of dollars were wiped out with the fall of the stock and real estate markets; the Japanese economy has been stagnant ever since.
In a private meeting hosted by the Eurasia Group in Washington, D.C. this week, Tadao Yanase, the Director of the Industrial Revitalization Economy and Industry Policy Bureau of Japan presented Japan’s proposed multi-pronged effort to revitalize its industrial competitiveness.
Yanase proposed a diverse approach to combat Japan’s economic woes that included ending deflation, lowering corporate tax rates from their world high of 39.54%, drastically reforming childcare to increase Japan’s stagnant birth rates, and a commitment to open up Japan’s economy. This reformation of Japan’s economy is predicated on domestic reform to promote free trade agreements, altering immigration policy to recruit foreigners to the work force, relaxing visa policies to attract tourists, securing greater foreign direct investment, and improving access to Japan by transforming the nation’s airports to meet demand. Yanase thus wants to ensure Japan’s future prosperity by not only addressing macro economic trends, but also diagnosing industry specific initiatives.
To the outside observer however, the road ahead looks unnerving: unfavorable demographics, a lack of skilled foreign immigrants, a clogged and bogged down banking system saddled with debt, an export-led economy over exposed to consumerism in America and Europe, and an astonishingly high debt to GDP ratio of 200%, all combine to paint a bleak image for Japan’s economic outlook.
It is clear Japan desperately needs economic reform, but does the Democratic Party of Japan (DPJ) have the political capital to push through the necessary reforms to revitalize the economy? Jeff Kingston wrote an interesting piece on the topic for Foreign Policy magazine. An excerpt from his article “Can Anyone Run Japan?” illustrates the daunting political situation in Japan. He writes:

What’s happening to Japan is bigger than [Japanese Prime Minister Naoto] Kan the man. After a series of short-lived, ineffectual leaders, many are wondering if the country itself has become, in essence, ungovernable. Kan is an astute politician with considerable skills, and voters seem to like his tough-love message for kick-starting the economy. Many agree with him that the old policies of vast public-works spending and deregulation have not worked and have instead left the country saddled with debt amounting to a whopping 200 percent of the country’s annual GDP. But voters are still skeptical that Kan can make real change. And what it boils down to is a loss of faith in political leaders after two decades of recession and growing social malaise. In an atmosphere where leaders are expected to fail, can anyone run Japan?

Superficial economic measures and political posturing cannot fix Japan’s woes. The nation is in need of a concrete economic restructuring and opening that will take a great deal of political capital, which as TWN publisher Steve Clemons has pointed out, has been made more complicated by Japan’s recent political upheaval. Unfortunately, despite the potential and desperate need for reform in Japan, it seems that Japan’s domestic political quandaries will continue to limit the opportunities for a real restructuring of its economy.
— Charlie Wagner


4 comments on “Can Japan Strengthen Its Industrial Competitiveness?

  1. Don Bacon says:

    The new economic pact between Taiwan and China, known as the economic cooperation framework agreement (ECFA), is expected to boost the island’s $390 billion export-led economy. The ECFA would boost about $100 billion in annual two-way trade by reducing tariffs on 300 items.
    This has created interest in Japan. Japanese companies from sectors as various as consumer electronics, semiconductors, optoelectronics, solar cells, machine tools, comics and e-books have reportedly been seeking to get a foothold in Taiwan with the objective of getting easier access to the Chinese mainland market.


  2. The Pessimist says:

    “Can Japan strengthen its industrial competitiveness?”
    Yes, of course they can, as long as they reject and repel any and all efforts by the US government to interfere in Japans domestic affairs.
    Will Japan strengthen its industrial competitiveness?
    No, of course they won’t, because the US government will reject and resist any and all efforts by the Japanese government to reform Japan


  3. PissedOffAmerican says:

    “Can Japan Strengthen Its Industrial Competitiveness?”
    Of course they can.
    All they need do is increase the amount of melamine, formaldahyde, and lead contained in products aimed at the American market.


  4. Don Bacon says:

    Strangely, this piece fails to mention that on July 11 Japan’s Prime Minister Naoto Kan and his DPJ party took a blow, losing control of the House of Councillors. It does not have enough members in the House of Representatives to have the two-thirds majority that would be needed to override any legislation held up by the House of Councillors.
    It’s a bad time because Japan has significant economic problems.
    The government survived because it controls the lower house, but it is largely powerless to address Japan’s economic woes. Mr. Kan, who has only been in office only about a month, faces a DPJ leadership election in September. The DPJ took over last September after the DPJ beat the Liberal Democratic Party (LDP) which has ruled Japan almost continuously since World War II.


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