Japan As Number Three

China has now officially supplanted Japan as the world’s second largest economy. The question for Japan is whether or not the country will continue to tumble down the list of the world’s great economies, or whether its politicians will return to a path of reform that can revive growth.

TOKYO – China has now officially supplanted Japan as the world’s second largest economy. The question for Japan is whether or not the country will continue to tumble down the list of the world’s great economies, or whether its politicians will return to a path of reform that can revive growth. That the ruling Democratic Party of Japan now seems trapped in a power struggle between Prime Minister Naoto Kan and party power broker Ichiro Ozawa suggests that serious economic reform is not at the top of the DPJ agenda.

In the 1980’s, Japan’s annual GDP growth averaged 4.5%; since the early 1990’s, the economy has been virtually stagnant, averaging barely 1% annual growth. In the 1990’s, Japan’s government, grossly misjudging the sources of the economy’s difficulties, vastly increased government expenditures on public works, but ignored supply-side adjustments.

This policy created new vested interests, and thus a new political environment, as construction companies and other beneficiaries of government contracts began donating heavily to the ruling Liberal Democratic Party. This kept the LDP’s coffers brimming, but posed the risk of a serious financial crisis in the late 1990’s.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.

required

Log in

http://prosyn.org/3Uhsu66;
  1. China corruption Isaac Lawrence/Getty Images

    The Next Battle in China’s War on Corruption

    • Chinese President Xi Jinping knows well the threat that corruption poses to the authority of the Communist Party of China and the state it controls. 
    • But moving beyond Xi's anti-corruption purge to build robust and lasting anti-graft institutions will not be easy, owing to enduring opportunities for bureaucratic capture.
  2. Italy unemployed demonstration SalvatoreEsposito/Barcroftimages / Barcroft Media via Getty Images

    Putting Europe’s Long-Term Unemployed Back to Work

    Across the European Union, millions of people who are willing and able to work have been unemployed for a year or longer, at great cost to social cohesion and political stability. If the EU is serious about stopping the rise of populism, it will need to do more to ensure that labor markets are working for everyone.

  3. Latin America market Federico Parra/Getty Images

    A Belt and Road for the Americas?

    In a time of global uncertainty, a vision of “made in the Americas” prosperity provides a unifying agenda for the continent. If implemented, the US could reassert its historical leadership among a group of countries that share its fundamental values, as well as an interest in inclusive economic growth and rising living standards.

  4. Startup office Mladlen Antonov/Getty Images

    How Best to Promote Research and Development

    Clearly, there is something appealing about a start-up-based innovation strategy: it feels democratic, accessible, and so California. But it is definitely not the only way to boost research and development, or even the main way, and it is certainly not the way most major innovations in the US came about during the twentieth century.

  5. Trump Trade speech Bill Pugliano/Getty Images .

    Preparing for the Trump Trade Wars

    In the first 11 months of his presidency, Donald Trump has failed to back up his words – or tweets – with action on a variety of fronts. But the rest of the world's governments, and particularly those in Asia and Europe, would be mistaken to assume that he won't follow through on his promised "America First" trade agenda.