Is America Turning Japanese?

Japan’s economy today is some 40% smaller than observers back in the late 1980’s confidently predicted. According to all evidence, the US economy’s fall from its long-run growth path has left America 7% poorer today (and into the indefinite future) than expected just seven years ago.

BERKELEY – Back in the late 1980’s, Japan seemingly could do no wrong in economists’ eyes. They saw a clear edge in Japan’s competitiveness relative to the North Atlantic across a broad range of high-tech precision and mass-production industries manufacturing tradable goods. They also saw an economy that, since reconstruction began after World War II, had significantly outperformed the expected growth of European economies. And they saw an economy growing considerably faster than North Atlantic economies had when they possessed the same absolute and relative economy-wide productivity levels.

The safe bet in the late 1980’s seemed to be that mechanization, computerization, and robotization would proceed. Political and economic pressure would lead more Japanese sectors to undergo the transformation to machine-intensive, high-productivity modes of organization that export-oriented manufacturing had already undergone (and that sectors like agriculture and distribution had undergone or were undergoing in the North Atlantic region).

The Japanese work ethic would persist, the reasoning went, and Japan’s high savings rate and slow population growth would give it a substantial edge in capital intensity – and thus in labor productivity – on top of whatever economy-wide advantage it might develop in total factor productivity. Moreover, proximity to a vast pool of low-wage workers would allow Japan to construct a regional division of labor that took full advantage of its high-paid, well-educated workforce and outsourced low-skill, low-wage, and hence low-productivity jobs to continental Asia.

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