Japan’s Best Chance to Kick-Start Economic Growth

In his new book, The Contest for Japan’s Economic Future: Entrepreneurs vs. Corporate Giants, economist Richard Katz proposes reviving Japan’s economy—following three “lost decades”—by promoting growth through entrepreneurship.

Katz is the New York correspondent for Weekly Toyo Keizai and a Senior Fellow at the Carnegie Council for Ethics in International Affairs. He previously authored two other books on Japan’s economy.

In his latest book, Katz traces Japan’s entrepreneurial history. During the Meiji and post-war eras, entrepreneurs built small firms into industry giants with government support. However, Japan’s economy later struggled as global competition shifted from capital-intensive industries to digital ones, where speed of innovation is key to success.

Japan lost its ability to reinvent itself as the economy matured and growth slowed, beginning in the late 1970s. The government, with support from industry allies, implemented policies focused on maintaining employment and social order rather than on disruptive innovation and growth. Those policies slowed the process of creative destruction, making it difficult for innovative firms to emerge and challenge established, inefficient players. A long period of economic stagnation ensued.

Today, Japan’s business landscape is dominated by large “zombie” companies. The nation is burdened by a trifecta of high debt, low growth and an aging/shrinking population.

Attempts by recent prime ministers to reform the economy, such as Shinzo Abe with his “Abenomics” policies and Fumio Kishida with his “new form of capitalism,” have been heavy on rhetoric but light on action. Katz argues that Japan’s leaders can reignite productivity growth if they demonstrate a genuine commitment to reform.

He advises the government, among other measures, to stop supporting “zombies” and instead provide much more help to high-growth startups.

Katz dismisses the notion that the Japanese are inherently risk-averse or conformist. “Change the policy, and you change behavior,” he writes, suggesting that economic revival requires relatively little political and social reform—all it needs is political will.

One can debate why policymakers have been slow to implement meaningful reforms. Nonetheless, there is no better time to kick-start an entrepreneurship-led productivity renaissance, as Japan is already changing.

Large companies, seeking a more flexible labor market, are hiring increasing numbers of irregular workers, who receive fewer benefits than regular workers employed under lifetime contracts. Regular workers no longer assume their jobs are secure for life, and workers more often follow “zigzag” career paths.

More capital is flowing into startups, and the number of new ventures is also rising. Many graduates from leading universities now view becoming an entrepreneur—an idea inconceivable a decade ago—as a respectable career.

Katz’s well-researched book is timely, balanced, and thorough, blending social, historical, and political perspectives. It reminds us of Japan’s pressing economic challenges and is a must-read for anyone wanting to understand how Japan must adapt to a changing world.

Richard Solomon is Editor-in-Chief of Beacon Reports.