What is the difference between a developed society that has remained in an economic slump for 20 years and one with steady prosperity for the same period of time? The answer is not clear. But that question dogged my mind in a recent two week visit to Japan after a gap of 20 years.
The Japan of today is amazingly prosperous. The first thing you notice is that it is spic and span clean: not a cigarette butt on a station platform; metro car floors you could eat off of; all new autos including many Mercedes and BMWs; endless flows of prosperous Japanese students and other tourists; ultra modern buildings everywhere; restaurants full of diners; Kobe beef at $250 or more a pound. In back streets of Tokyo and Kyoto, there is not a sign of poverty, dirt, or disease.
This picture of Japan is radically at odds with global expectations after decades of slow or non-existent economic growth and deflation. What is going on, and what can we learn from it?
Economists' definition of success is all about dynamic growth. So how has Japan created steady prosperity in recent years?
Japan has a per capita income comparable with the United States, but its 20-year growth rate has been anemic. Its birth rate is well below the average for developed nations, but its savings rate remains among the highest in the world. Consumption as a percentage of GDP is well below the United States. Its stock market remains stagnant and well below its historical highs. Its interest rate levels are as low as a negative rate in some cases.
But, after its property bubble burst about 1990, it largely avoided the excesses in housing markets and derivatives that caused the serious credit problems in the US in 2008. Its unemployment rate remains very low because its employment polices insure a job for almost all citizens. And, of course it is very different from all other developed nations in that it is still an island state home to 130 million people, 90 percent of whom are pure ethnic Japanese with few religious issues and minimal immigration.
How have they navigated these past two decades with such steady results? Despite a lot of political turnover they are still a monolithic society with a remarkable sense of togetherness. One small but telling example is that a large percentage of Japanese people start their days exercising either in public, or at home to the same TV hosts. (Is it possible that a nation that exercises together and works together stays together?) There is a much smaller gap between the highest paid and least paid than in the US; although, there is also less social mobility and less innovation and entrepreneurship than in the US.