Nov. 20--If you think of Japan these days, it's probably about cars or video game consoles or maybe even pop culture. (Those clever smiley face symbols and characters that liven up text messages? They're Japanese 'emoji').
What's missing from the conversation is economic might. Japan, a crucial trading partner, is in bad shape, unable to contribute much to a global recovery that desperately needs the jolt Japan once could provide.
The country unexpectedly fell into recession this week, but anyone surprised isn't looking at the big picture: Japan never truly recovered from its go-go days of the 1980s. For decades the former world-beater has drifted along, dipping into recession from time to time at a long-term growth rate of less than 1 percent.
Japan's anemia isn't a mystery. Prime Minister Shinzo Abe knows what should be done -- a dramatic shake-up of the economy to encourage competition and reward efficiency. He has, responding to the grim economic news, called for early parliamentary elections intended to give him a mandate to lead with more authority. The problem is Japanese society remains too cautious and comfortably rich to embrace the painful changes required to reinvigorate the economy. That puts the prime minister and his plans at risk.
Japan has had six prime ministers in the seven years since Abe's first run as prime minister ended in 2007. That says something about the country's malaise. For nearly 20 years, Japan has struggled to strip away the hidebound regulations and traditions that protect entrenched interests ranging from corporations to farmers. No one's been able to pry open the door to a new approach.
What's holding back the country is partly what built it: Japan Inc.
There's a lot about the Japanese economic model that still rocks, including its management and manufacturing prowess. But some of Japan Inc.'s defining attributes -- consensus-driven leadership, a focus on teamwork and social cohesion -- get in the way of taking risks. Meanwhile, competitors like China and South Korea forge ahead, leaving Japan on a slow fade. A few years ago China surpassed Japan to become the world's second-largest economy.
The problem in Japan hasn't changed since the economic bubble popped in 1990: Too many people would rather struggle to maintain the status quo than try something new.
In Japan, entrepreneurship is undervalued. Too many companies have no outside directors, who might contribute a valuable perspective. Very few firms use layoffs to reshape troubled operations because of strict labor laws and a cultural taboo. Without that flexibility, managers fill many empty positions with temporary or part-time workers who are paid less, which hurts consumer spending.
The pressure is demographic, too. Japan's population is getting older and shrinking in numbers, but the government keeps a tight leash on immigration and hasn't done nearly enough to encourage women in the workforce. About half of Japan's companies have no female managers, according to one survey.
Unable to unleash creative destruction, Japan is trapped in a deflationary cycle of falling wages and prices in which consumers are wary of spending.
Abe is pursuing a three-prong approach to coax Japan forward, including billions in government spending and an expansion of the monetary supply to ignite inflation. That's helped stock prices, but the third prong of what he calls Abenomics is most crucial because it's the only sustainable approach: shaking up Japan's culture.
While Abe has claimed some progress, there's a lot of political work required to keep the reforms moving. Abe is pushing to join the Trans-Pacific Partnership, a U.S.-Asia free-trade pact, but he's hamstrung by protectionist farmers. He wants to cut corporate taxes and deregulate agriculture and health care, but nothing's happened yet.
This is why the December parliamentary election is such a wild card. At a crucial moment, the Japanese public could rally behind Abe -- or undo his administration. He's made one move to help himself: postpone a sales tax increase meant to counter Japan's enormous debt load.
Japan's been at these economic crossroads before, and each time has backed away. It's finally time for Japan to embrace the new approach Abe and Abenomics represent.
.jpg?w=600)
