What Lessons Do the Lost Two Decades of the Japanese Economy Give to the Other Economies

Abstract

During the recent three decades, 1980~2010, the Japanese economy has experienced a period of rapid growth followed by two stagnant decades with serious financial distress and continuous deflation. In this process, Japan established a strong base for manufacturing industries in the world but could not handle the external shocks—the Plaza Accord, the rise of China, the Asian financial Crisis and the 2008 Financial Crisis—and adjust its economy to the dramatic changes in the energy/resources and financial markets. This paper sums up the representative views of Japanese economists on these problems and then presents the author’s own opinions. A sharp and continuous decline of economic growth was caused not only by external events but also aggravated by the mismanagement of private and public agencies, particularly in the financial sector. The author relies on a number of outstanding works by Japanese and foreign economies like Mitsuo Saito (1927-2010), The Japanese Economy, WSPC, 2000.; 3 volumes edited by Fumio Hayashi, Positive Analysis and Design of Economic Institutions (J). Keiso Shobo, 2007, besides his own studies: Political Economy of Japanese and Asian Development, Springer-Verlag and Sobun-sha, 2003 and other essays. One important work is Tadao Kagono, The Spirit of Management (J), Japan Productivity Center Pub. Co., 2010 which pointed out that the Japanese government made a mistake in reforming the Corporation law, at the suggestion of the US government, to change the behavior patterns of Japanese entrepreneurs toward less risk-taking when more outward-looking behaviors are required in this uncertain world nowadays, and lost the precious traditional spirit of Japanese-style management. All other important references are given at the end of the paper with a statistical appendix.