Japan’s Road to Harmonious Decline

The recent electoral triumph of Yukio Hatoyama’s untested Democratic Party of Japan has confirmed the Japanese public's wish not to follow America’s free-market model. But, while the DPJ's victory reflects Hatoyama's understanding that most Japanese are willing to accept economic stagnation as the price of avoiding painful change, how long can Japan afford this sentiment?

PARIS – Forget what you have heard about the hard-working Japanese salaryman: since the early 1990’s, the Japanese have drastically slackened their work habits. Indeed, Tokyo University economist Fumio Hayashi has demonstrated that the main reason behind Japan’s 20 years of stagnation has been the decrease in the quantity of work performed by the Japanese.

The government itself has led the way here, starting with its decision to close public administration buildings on Saturdays. Japan’s banks followed suit. From 1988 to 1993, the legal work week fell 10%, from 44 hours to 40. This, as much as anything, helped to bring Japan’s long-running post-WWII economic “miracle” to its knees.

In the service sector, the decline is even worse than in manufacturing, because services are heavily regulated and partially closed to foreign competition. In the retail sector, which employs a huge number of Japan’s unskilled workers – the so-called “mom and pop” shops – Japanese productivity is now 25% lower than in Western Europe.