My relationship with Japan dates back to 1989, when I visited for the first time to collect data for research comparing Japan’s productivity with that of the US and Germany. In those days, flying from Amsterdam to Narita took 18 hours and included a stopover in Anchorage. I stayed for a few weeks in a small house in Tokyo’s Shinjuku area, sharing with teachers from the US and other foreigners, sleeping on tatami beds and eating in Japanese restaurants where you would choose your meal by simply pointing at the clever plastic model of the food in the window–great looking and great tasting food! Japan was going strong in those days, with GDP growing at around 4-5% a year.
In the US at that time, many books were being written about Japan’s strong economic performance and the perceived threat to the US economy—including the 1989 bestseller, Made in America. Japan’s industries, and in particular electronics, cars and steel, were among the most modern and productive in the world, thanks to their strong engagement in exports, their uptake of modern technology, and constant innovation in products and processes. However, at the same time, many service sectors and domestically focused industries lagged well behind the US and Germany. Then, as today, there were large productivity differences between those sectors in Japan that were engaged in international trade and exposed to international competition and those that were not.
I returned in 1991 for a longer visit, spending almost six months at the new Fujisawa campus of Keio University, outside Tokyo, where there were very few other foreigners. I continued my work on Japan’s productivity performance, and became more immersed in the way of life in Tokyo. It is still one of my favourite cities in the world to visit, and not only for its impressive food culture. It was around that time that Japan’s economy had begun to wilt, and what followed was over two decades of slow growth: Bill Emmott, who later became the editor of The Economist, had underlined the difficulties ahead in his bestseller, The Sun Also Sets.
Since I joined the OECD in 1994, Japan has been a regular destination of mine. While there are more foreigners in Tokyo today than in the early 1990s and the city has become easier for visitors, many of the OECD’s studies still point to an economy that is less internationally engaged than most other advanced countries, with low levels of international co-operation in science and technology, low levels of international migration, including of the highly skilled, and low levels of foreign direct investment. These are worrying facts, since as many of the OECD’s reports have pointed out, Japan increasingly needs access to knowledge, technology, people and resources from outside the country. Even for a large economy like Japan, 90% of knowledge creation occurs outside the national borders, and in a world where innovation has become more complex and expensive, accessing foreign knowledge and working with partners is of growing importance. Critics have even referred to Japan’s relative insularity as “the Galapagos Syndrome”, whereby many products and services within Japan are highly sophisticated, but don’t have much success in the global marketplace.
So while Japan grew rapidly in the three decades following OECD accession, since the early 1990s it has grown only slowly, if at all, with little of the dynamism apparent in many other Asian countries at the time. But now it finally appears to be emerging from a long, difficult period, and is actually showing signs of business dynamism, with many new start-ups opening in Tokyo and elsewhere. If the momentum is sustained, Japan stands to become a more creative, dynamic and entrepreneurial economy. There is much that Japan has to offer to the world, in robotics and the use of big data, for example. Further opening up of the economy to knowledge, technology, people, trade and foreign direct investment would benefit not just the Japanese, but all of us. Happy 50th anniversary, Japan!
Dertouzos, Michael L., Richard K. Lester and Robert M. Solow (1989), Made In America: Regaining the Productive Edge, MIT Press, Cambridge, Massachusetts.
Emmott, Bill (1989), The Sun Also Sets: The Limits to Japan’s Economic Power, Times Books, New York, Simon & Schuster, London.
©OECD Observer No 298, Q1 2014