NCPA - National Center for Policy Analysis

Japan: Innovate Or Lag Behind

July 11, 1996

Some economists predict that Japan is at risk of slipping from the first rank of industrial powers. Among the country's problems is a rigid culture which is less innovative than others, concentrates financial decision-making to the hands of a small group of giant institutions and relies heavily on group consensus -- rather than accentuating individual action and thought.

  • Output per worker in Japan, which grew at an annual pace of 6 to 8 percent during much of the century, began to decelerate in the early 1970s.
  • Tokyo lowered its official estimate of long-term growth potential for the economy to 4 percent from 6 percent in the mid-1980s and, most recently, to just 3.5 percent.
  • Experts note that Japanese growth seems to have stalled prematurely, at a point where output per worker is well below American levels.
  • The slowdown has occurred despite a sustained investment effort that exceeded the pace of American capital accumulation even during the last recession.

After decades of low birth rates and rising life expectancy, Japan has a rapidly aging population. Economists forecast that the country's labor force will shrink by 14 percent over the next 20 years, while the population will grow by 4 percent.

But the main piece of advice being given Japan by experts is: become friendlier to innovation.

Source: Peter Passell, "A Rigid Japan Inc. Could Tumble from the Top Industrial Ranks," New York Times, July 11, 1996.


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