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A Case Study on Japan's Stagnant Economy

Written by: Seerat Kaur

(Runner Up-College Category, Essay Writing Competition 2020)

Economic development is a multi-dimensional concept. It is dependent on various forces, including the country’s culture and ethical system. Every economic system in this world is affected and shaped by the background under whose circumstances it originates. A good example to showcase this interplay of culture and ethics would be an analysis of Japan’s stagnant economy. When it comes to the greatest economies in the world, Japan is proudly ranked third. What would make one feel even more impressed is how Japan managed to quickly strengthen its badly hit economy post World War II and what was the deadliest nuclear attack by the Americans in Hiroshima & Nagasaki. America’s occupation of Japan ended in 1952, after the U.S. and Japan signed a security treaty which let the U.S. maintain military bases there, and later a revision in 1960 said that the U.S would come to Japan’s defense in an attack[1]. Much like the Marshall plan, the U.S also decided to lend Japan a huge bulk of money and agreed to guard its maritime traffic. This was an act made due to geo-political reasons, backed by a strong sense of resentment. Soon after the Korean War, the U.S was worried about the spread of communism in Asia. Interestingly, Japanese and American relations improved drastically and the major force behind this scenario was economic. While international relations are highly dynamic and U.S and Japan did not continue to remain the best of allies, it is noteworthy to note how Japan quickly revived its economy and entered the modernisation and industrialist phase on its own. During the recovery period, Japan’s per capita GDP rose at an average annual rate of 7.1%. Soon there was an era of rapid growth. In 1973, Japan’s per capita GDP was 95% of that of Britain and 69% of that of the United States. By 1991, Japan’s per capita GDP was 120% of that of Britain and 85% of that of the United States[2]. Many experts believe that the main reason behind this surge was the reallocation of resources and labour from the lesser productive agricultural sector to the high paying non-agricultural sector. Known economists Fumio Hayashi and Edward Prescott in their paper “The Depressing Effect of Agricultural Institutions on the Pre-war Japanese Economy’ give credit for this economic acceleration to institutional changes[3].

However, all this growth ended in the early 1990s when Japan’s economy became stagnant.

The Japanese culture extensively focuses on giving respect and priority to the older workers while dismissing the youth, irrespective of their merit. This has resulted in the behaviour of ignorance towards the newer innovative ideas which can increase the efficiency and productivity if given a chance. Instead of encouragement, these young men are often faced with snares and insults. There was a time when 36% of Japan’s economy was driven by its high-end video gaming technology. Soon, these video game companies lost millions of dollars because they refused to use western technology, which in the end, they had to bite the bullet and use anyway. The owners of businesses (called the ‘salarymen’) value the old and traditional methods of executing work too much to welcome any new change. Even during the current coronavirus pandemic, it has been observed that most of the Japanese older men are still preferring to work from the office physically, while the younger employees work remotely. This ‘dedication’ is an impractical evil under the garb of ‘the good old way’. The salarymen of Japan themselves are defined by their loyalty to their company and are expected to work at the same company for their entire lives. Most of the Japanese companies have a strong Japanese corporate culture. This culture teaches them to value seniority over talent. The people who have been religious and loyal to one single company tend to acquire the high manager positions, while the talented, yet younger people stay stuck in the corporate ladder. While there is no denying the fact that experience makes a business stable and qualitative, balancing it out with newer talent that can help in adapting your business to the contemporary times can take one’s business to newer heights. The way Japanese culture perceives failure does not encourage entrepreneurial endeavours at all. One is perceived as a failure for not being able to land up their aspirations. The concept of risk opportunity is frowned upon, resulting in an extremely low entrepreneurship index for a country like Japan. Since the Japanese culture despises inexperience, public conception considers resigning from a job equivalent to ending your career. While the underlying reasons could be extreme stress or a manipulative work environment, these reasons are not good enough. This is so because there is an extremely high chance for these men to be recruited at the lowest level in the new company, despite the professional experience.

Ever since the post-World War II era, Japanese culture has always placed ‘hard work’ as the most needed and basic quality. This quality has percolated its way down to the corporate culture as well. This has resulted in the Japanese population facing a huge crisis of extremely long work hours. Opposite to popular belief, this policy of long work hours results in bad employee health and extremely low productivity. In fact, Japan has been recorded for having the lowest productivity among the G-7 Nations[1]. The working hour situation in Japan has been so bad that some people have reportedly died because of overwork. ‘Karoshi’ is the Japanese term that refers to death by overwork. Nearly a quarter of companies have their employees work more than 80 hours of overtime per month. This overtime is often unpaid. In 2017, a survey found out that Japanese employees, when granted 20 days of paid leaves in a year, left 10 unused. Thus, one doesn’t have to be sitting inside his corporate office to feel the effect of the work culture and ethics. Inside Japan’s corporations, the culture emphasizes the success of the company as a whole more than that of the individual. This explains why a study found that 63% of the Japanese employees felt guilty to take the paid leave. More than a hundred cases of Karoshi take place in Japan annually. Widespread angst was felt among the Japanese people when an employee of an advertising firm, ‘Dentsu’ jumped to her death because of depression due to overwork in 2015. This gained a great amount of public attention and resulted in the CEO resigning and the company asking the employees to leave the offices by 10 pm strictly. As a result, both the companies and government have been actively trying to reduce the number of working hours. Certain steps have also been taken in this direction. When the government introduced ‘premium Fridays’ which allowed the employees to leave much earlier on the last Friday of the month, a study showed that less than 4% of the employees in Japan actually left early. This is where the need to bring about changes in the culture and ethics arises. Since the Japanese culture has always emphasized the idea of favouring the group over the individual, every individual tries to abide by these codes of ethics and not be selfish.

Another major cultural problem being faced by Japan is that of increased depression and social isolation. ‘Hikikomori’ is the Japanese term used for individuals who shy away from sexual relationships and stay under their parents’ shelter while living a life of social isolation. This phenomenon of social isolation is attributed to Japan’s highly competitive culture. Japanese culture tends to place a significant amount of importance on education and employment. Securing a well-paying job and supporting the parents is supposed to be the child’s responsibility but due to the significant downtrend and stagnation in Japan’s economy, unemployment has been on the rise. The lack of job vacancies has a massive impact on the younger generation. With fewer jobs in the market, many Japanese men give up hope and withdraw from society. This is a dangerous situation because most of Japan’s workforce consists of the older generation. By withdrawing from society, people also withdraw from reproduction. Lower birth rates and subsequent change in consumer habits are two major causes of a drop in any country’s economy. Considering the depth of culture associating with success and hard work with self-identity in Japan, it will take significant social effort to improve the situation, thereby improving the economy.

Famous author Kenichi Ohmae describes the current state of Japan as a “low desire society,”[2] where there is an extremely low desire to possess or consume, and points out that seniors in particular “are preparing for their retirement years with three layers of investment: pensions, savings, and life insurance.”[3] Hence, most of the people from the younger generation have lost the desire to earn more money. The theory that people will always want to make more money doesn't apply in Japan. Perhaps what Japan needs is another ‘Meiji Restoration’. Meiji restoration is referred to the time when Emperor Meiji restored his practical imperial rule to the Japanese empire. A similar kind of historic restoration work is required. There is no doubt that a structured way of reforms in the cultural norms and beliefs would go about a huge way of improving the Japanese economy.

Hence, there is a huge need to incentivize the youth and start welcoming newer ideas. Japan needs to recognize the fact that making workers work longer hours will only reduce their efficiency. Instead, producing more jobs will not only help with better productivity but will also bring about a change in the social realm. This brings us back to where we started, ethical and societal culture defines the economy of a country. The economy can barely be isolated from the term ‘development’. Being a rather conservative society, there is a huge gender inequality when it comes to pursuing jobs. Women are often considered weaker and less efficient. Only a few would disagree with the thesis that gender inequality is out of step with modernization and that its presence retards collective human progress. The development includes reducing poverty, expanding opportunities, having a prosperous economy, providing the citizen with basic welfare amenities, and ensuring the psychological well-being of all inhabitants. It is also in a very fundamental way, about adopting a set of values that are compatible with humanity’s moral development. As per the International Monetary Fund, an economic revival plan was recently laid out to exit this decade-long inflation in Japan[4]. The policymakers must consider how strongly culture and ethics affect the working of a country and incorporate respective solutions to eradicate problematic norms and beliefs from the structural level itself.


1. Waxman, Olivia B. “How Japan and the U.S. Reconciled After Hiroshima, Nagasaki.” Time, Time, 6 Aug. 2018,

2. Tetsuji, O., 2020. Lessons From The Japanese Miracle: Building The Foundations For A New Growth Paradigm. [online] Available at: <> [Accessed 4 September 2020].

3. Fumio Hayashi and Edward C. Prescott, “The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy,” Journal of Political Economy, vol. 116, no. 4 (August 2008), pp. 573-632.

4. Saiidi, Uptin. “Why Does Japan Work so Hard?” Youtube, uploaded by CNBC International, 1 June 2018,

5. Ohmae, Kenichi. How to Ignite the Low Desire Society’. Shanghai: Shanghai yi wen chu ban she, 2018, 2018.

6. Foreign Press Centre Japan. “Issues with Seniors in Japan.” Foreign Press Centre Japan, 16 Oct. 2017,

7. “IMF Country Report No. 15/197.” IMF Country Report No. 15/197, 2012,

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