Why has Japan's economy been staggering? A

The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/1059-5422.htm

Why has Japan’s economy been staggering? A competitiveness perspective Jimmyn Parc

Japan’s economy

433

Seoul National University, Seoul, the Republic of Korea and Sciences Po, Paris, France Received 11 January 2017 Revised 19 March 2017 Accepted 11 August 2017

Abstract Purpose – Once one of the most prominent economies in the world, Japan is currently suffering from economic stagnancy. To revitalize the economy effectively, the core problems of Japan and its economy need to be first identified. This paper aims to understand accurately what the fundamental reasons are for Japan’s current economic stagnancy. Design/methodology/approach – The generalized double diamond model, which is an extension of Porter’s original diamond model is used to incorporate internationalization which is very important for Asian countries, notably Japan. Furthermore, its competitiveness is compared with neighboring countries that are in competition in the global market. Findings – Japan’s current economic problems and its slow recovery are because of a lack of globalization vis-à-vis its counterparts in the region, rather than specific macro-economic factors. Hence, further globalization is crucial toward ensuring a further take-off for the economy. Practical implications – Macro-economic policies may be important but cannot directly improve a nation’s competitiveness. This paper highlights the importance of globalization and concludes that multinational activities are crucial to enhance a nation’s competitiveness in both domestic and international scope. Originality/value – This paper adopts the concept of national competitiveness to examine the fundamental economic problems of Japan’s slow recovery and stagnancy more comprehensively. In particular, it compares the competitiveness of Japan with its neighbors which are its economic competitors. Keywords Japan, Globalization, Competitiveness, Diamond Model Paper type Research paper

Introduction Japan’s economy seemed to be an unstoppable force of growth when Ezra Vogel’s (1979) influential book, Japan as Number One, came out in[1]. Throughout the 1970s and 1980s, its tremendous trade surpluses became a popular target for protectionists in Europe and America. Much of this was down to the fact that Japanese firms had beaten their rivals in the market with competitive hardware breakthroughs – from automobiles to home appliances. Thus, Japan and its firms, popularly known as Japan Inc., were viewed as the world’s preeminent economic power. However, Japan’s economic growth showed little progress after the economic bubble burst in the 1990s and the country began to subsequently experience a long period of stagnation. The 1990s are commonly referred to in Japan as the “Lost Decade” while the Helpful comments were received from Akira Igata (Graduate School of Law, Keio University). The author thanks Keio Institute of East Asian Studies (KIEAS), Keio University and Institute for Japanese Studies, Seoul National University for an opportunity to present an initial version of this paper at Keio University.

Competitiveness Review: An International Business Journal Vol. 28 No. 4, 2018 pp. 433-450 © Emerald Publishing Limited 1059-5422 DOI 10.1108/CR-01-2017-0005

CR 28,4

434

1990s and 2000s are known as the “Lost Two Decades.” Japan’s economy, the world’s thirdlargest which was once second after the USA, has been trying to recover from its economic recession. However, its recovery though has been hampered by a combination of factors; a slowdown in key markets such as the USA and the Eurozone, the 2011 Tohoku earthquake, floods in Thailand which caused production disruption for Toyota (The Economist, 2012) and the continued slowdown of the Chinese economy (Tan, 2016). By contrast, Japan’s East Asian counterparts, such as China, Hong Kong SAR of China (hereafter Hong Kong), Chinese Taipei (hereafter Taiwan), Singapore and South Korea (hereafter Korea), continue to expand their economic power in the global markets despite severe difficulties during and after the 1997 Asian economic crisis. China surpassed Japan in terms of GDP while Hong Kong and Singapore are solidifying their presence as the global logistics and trade hubs, respectively. Furthermore, chaebols or Korean conglomerates, such as Samsung, LG and Hyundai-Kia, have become increasingly important players in the global markets once dominated by Japanese firms. Facing the emergence of regional competitors, Prime Minister Shinzo Abe and his government announced a series of fiscal stimulus plans beginning with 20.2 trillion yen (US $210bn) in 2013 (McBride and Xu, 2016) and more recently ¥28.1tn (US$276bn) in 2016 (Mullen, 2016). This spending may help to accelerate a recovery from recession as Abe pledges to boost growth and end deflation. However, analysts believe that a sudden jump in inflation caused by Abe’s new fiscal measures may actually hurt the country (BBC News, 2012; McBride and Xu, 2016). In fact, the results have been slower than expected. Japan’s economy grew by 0.7 per cent in 2013 (BBC News, 2014) and by only 0.5 per cent in the third quarter of 2016 (The Japan Times, 2016). This fiscal stimulus is, in fact, part of Abenomics. This term describes the economic policies, advocated by Abe and his government, which are based upon the so called “three arrows” of fiscal stimulus, monetary easing and structural reforms. Will Abenomics bring Japan back to the glory days of the 1970s and 1980s? Many experts continue to be pessimistic about its results (The Wharton School, 2016) and it appears that Tokyo has devoted too much effort and resources for little in return. More recently, Abe initiated Abenomics 2.0 which is not much different from Abenomics 1.0. This simply suggests that Abenomics 1.0 did not achieve the targets he had set out. In examining its ineffectiveness, Sender (2016) argues that Abenomics was never about real reform but rather about enhancing the price competitiveness of Japanese goods. This then helps to boost exports by undercutting competitors like China and Korea. Kingston (2016) takes it one step further by arguing that Abenomics has focused on investors and trading by neglecting to boost the fundamentals of productivity and competitiveness. To minimize risks brought on by a specific policy prescription and to ensure the efficient allocation of resources, the core problems for Japan and its economy that continue to stall its recovery need to be accurately identified. Although many media outlets and a few scholars have tried to uncover the causes of these problems, most of their explanations have not been entirely convincing. Therefore, a holistic approach that can examine the fundamental economic issues, by using a comprehensive and solid analytical tool, can help to develop more effective economic policy recommendations. In this regard, this paper focuses on the competitiveness of Japan before Abenomics was launched. Literature review When looking at the reasons for Japan’s economic stagnancy, Wakabayashi (2012), Fingleton (2012) and Kihara (2016) point out that the strong yen has made it difficult for Japanese companies to enjoy price competitiveness when compared to their counterparts;

the yen has risen 87 per cent against the USA dollar and 94 per cent against the British pound. The strong yen and low price competitiveness has made it a challenge for Japanese firms to invest in future products and technologies. Consequently, they have lost their competitiveness and fell behind in the race to develop new technologies. The Economist (2012) and Hasan et al. (2016) adopt a similar approach by pointing out that the strong yen along with high corporate taxes encouraged manufacturers to shift production abroad, which eventually resulted in a decrease in the number of jobs in Japan. Furthermore, The Economist highlights the problems of an aging population and falling household-savings: from 14 per cent of disposable income in the early 1990s to only two per cent over the past couple of years. Scissors and Yokoe (2012), De Michelis and Iacoviello (2016) and Xing (2016) view Japan’s difficulties as emanating from large debt caused by rising pensions and healthcare costs due to an aging population, as well as shrinking tax revenues. They argue these factors lead to very weak economic growth. In response to these challenges, they suggest that borrowing must be halted by cutting spending, in particular by sharply reducing subsidies, transfers to local governments and pensions for those who are clearly able to work. However, without significant productivity enhancement, merely cutting spending would not be enough to revive an economy. On top of this, an aging population and a diminishing labor pool only make the problem worse. Unlike others who focused on macro-economic factors, Prestowitz (2012) expresses an interesting argument that takes on a different perspective by highlighting Korea’s economic success. He states that Korea’s economy is doing well because it utilizes the classic Japanese formula; “they have worked like crazy, saved like crazy, and invested like crazy.” This means that Korea has been performing better than Japan, which results in a weakening of Japan’s overall competitiveness comparatively. This aspect is the key element in what Porter (1990, p. 1) argues is essential toward achieving economic success. Regarding the concept of competitiveness, Michael Porter (1990) provides a more comprehensive approach positioning four prevailing ideas on national competitiveness. He argues that (1) national competitiveness does not originate from a macroeconomic phenomenon, nor is it driven by such variables as exchange rates, interest rates and government deficits. However, some nations have enjoyed rapidly rising living standards despite budget deficits (e.g. Italy, Japan and Korea), appreciating currencies (e.g. Germany and Switzerland) and high interest rates (e.g. Italy and Korea) (Porter 1990, p. 3). He also states that (2) competitiveness is not a function of cheap and abundant labor which is very much related to the argument of an aging population. For instance, nations such as Germany, Sweden and Switzerland have prospered despite high wages and long periods of labor shortage (Porter, 1990, p. 3). He further notes that, unlike the traditional economic idea that competitiveness depends on possessing bountiful natural resources, (3) resource-poor countries are prospering relative to the resource-rich ones. Examples of such countries in this regard are Germany, Italy, Japan, Korea and Switzerland (Porter, 1990, p. 4). Finally, Porter insists that (4) competitiveness is not directly influenced by government policies, such as targeting, protection, export promotion and subsidies. Evidence is drawn from his study of a few nations, e.g. notably Japan and Korea and a few large and highly visible industries such as automobiles, steel, shipbuilding and semiconductors. Yet, the decisive role of government policies in competitiveness has not been confirmed by a broader survey of experience (Porter, 1990, p. 4). He concludes that: [. . .] none of these explanations for national competitiveness, any more than a variety of others that have been put forward, is fully satisfactory. None is sufficient by itself in rationalizing the

Japan’s economy

435

The full text of this paper is not available on this website due to copyrights.

Jimmyn Parc, 2018, “Why has Japan’s Economy Been Staggering? A Competitiveness Perspective”, Competitiveness Review 28(4): 433-450.

“model” (Grant, 1991). This is mainly because Porter fails to incorporate the effects of international activities in his model (Moon et al., 1995, 1998). To address this weakness, Dunning (1992) treats multinational activities as a third exogenous variable which should be added to Porter’s original model. In today’s global business environment, however, multinational activities represent more than just an exogenous variable. Therefore, Porter’s diamond model has been extended by Moon et al. (1995, 1998) to a generalized double diamond model whereby multinational activity is formally incorporated into the original model (see Figure 1). The validity of the generalized double diamond model has been proven by the empirical study of Korea and Singapore (Moon et al., 1995, 1998; Moon and Kim, 2010). In this respect, Parc and Park-Barjot (2014) argue it is more effective to use the generalized double diamond model rather than Porter’s diamond model to analyze and compare the competitiveness of a country with rival countries. Furthermore, these East Asian countries have been engaged in various international activities. To facilitate easy comparison among countries, this study has labeled Porter’s diamond as the domestic diamond while the generalized double diamond is referred to as the global diamond to recognize the inclusion of multinational activities. Specifically, the global diamond is a summation of both the domestic diamond and international variables, representing the multinational activities of the original diamond model’s four determinants. To analyze Japan’s national competitiveness more objectively and meaningfully, it is important to have comparison targets. Competitiveness has more purposeful implications when assessed among nations with similar characteristics because competitiveness implies a relative position among contemporaries in the same competitive group [Industrial Policy Studies (IPS) (various issues); Parc and Park-Barjot, 2014; World Economic Forum (WEF), 2018]. Thus, this study provides a comparison of Japan with China and three newly industrialized countries (NICs), specifically Hong Kong, Singapore and Korea[2]. This is due to the fact that Japan has closer ties with these NICs and China economically and geographically (Ng and Yeats, 2003; Wang, 2003; Cutler et al., 2004; Parc and Park-Barjot, 2014). Once data sets are chosen and collected, the competitiveness index for each variable is measured; a maximum value of “100” is given to the proxy which has the highest value in each variable, and a relative ratio in terms of percentage is given to the other proxy. If a variable is measured by two elements, one half weights are given to each element. For instance, factor conditions have basic and advanced factors and each of them has two Firm Strategy, Structure, and Rivalry

Factor Conditions

437

Firm Strategy, Structure, and Rivalry

Demand Conditions

Factor Conditions

Demand Conditions

Domestic Diamond Global Diamond Related and Supporting Industries

Japan’s economy

Related and Supporting Industries

Figure 1. The diamond model (left) and generalized double diamond model (right)

CR 28,4

438

proxies. Basic factors are the average of two proxies, and factor conditions are the average of basic and advanced factors. Thus, the same methods of Moon et al. (1998), Liu and Hsu (2009), Moon and Kim (2010) and Parc and Park-Barjot (2014) are applied. Variables and data This study selects three different years, 2000, 2005 and 2010 from among the data sets[3]. Through this, it seeks to examine the recent competitiveness trend of the selected countries, but crucially these dates are before Abenomics was introduced in 2012. This will help to examine the fundamental problems of Japan’s economic stagnancy – data after 2012 are not utilized due to possible influence of and distortion caused by Abenomics. This selection is also adequate since, in these years, the sample countries were under similar conditions and not influenced by specific events. This is similar to the approach used by Parc and Park-Barjot (2014). For example, by 2000 most of the selected countries in this study had recovered from the 1997 Asian economic crisis; 2005 is before the outbreak of the global financial crisis of 2008; and finally, in 2010, all the selected countries were suffering from effects of the global economic recession. In particular, this is before Japan was affected by the Tohoku earthquake in 2011 which caused significant economic damage. In this regard, it can be said that these three years are rigid enough to be chosen for measuring and comparing the competitiveness of the selected countries. Crucially, they were all under similar conditions during these specific years. Furthermore, the gaps of these years are consistent, namely, five years. Some would argue that the data sets of 2000, 2005 and 2010 are outdated. However, this article aims to address the fundamental reasons for Japan’s current economic stagnancy before Abenomics was initiated. Thus, the choice of data sets is reliable enough for this study. Dependent variable The dependent variable of the diamond model is global competitiveness. As used in Porter’s (1990) argument, national productivity is used as a proxy for the dependent variable. While previous studies (Moon et al., 1998; Moon and Kim, 2010; Parc and Park-Barjot, 2014) listed several measurements as possible proxies for the dependent variable, GDP per capita is used for this study with consideration of data availability (see Table I). Independent variables As conducted in previous studies (Moon et al., 1998; Moon and Kim, 2010; Parc and Park-Barjot, 2014), this paper will perform a test with domestic variables first and then with both domestic and international variables. Table II enumerates domestic independent variables, which constitute the domestic diamond and international independent variables alongside it.

GDP per capita (current US$) 2000 2005 2010

Table I. Dependent variable

JPN

HKG

KOR

SGP

CHN

37,291.71 35,781.23 43,063.14

25,756.66 26,649.75 32,374.48

11,346.66 17,550.85 20,540.18

23,814.56 28,952.81 41,986.83

949.18 1,731.13 4,432.96

Notes: JPN-Japan, HKG-Hong Kong, KOR-Korea, SGP-Singapore and CHN-China Source: The World Bank (2016)



CR 28,4

440

Labor force (total) is newly added since the above mentioned East Asian countries are mostly manufacturing-oriented economies as highlighted by Parc and Park-Barjot (2014). For manufacturing industries, labor pool is one of the most basic and important factors. Hourly compensation for manufacturing workers and availability of scientists and engineers are adopted from previous studies (Moon et al., 1998; Moon and Kim, 2010). Research and development expenditure (per cent of GDP) is also added because large amounts of R&D expenditure provide the opportunity to develop more advanced technologies as Parc and Park-Barjot (2014) have argued. For international variables, while inward and outward FDI stock has been kept from previous studies, this paper applies international migrant stock (per cent of population) for basic factors and student international mobility (inbound and outbound, tertiary students per 1,000 inhabitants) for advanced ones. The presence of a large number of international migrants increases the labor pool and international mobility among tertiary students is assumed to contribute toward the development of new technologies. Demand conditions. For demand conditions, not just the absolute size but also the rate of growth for home demand is important to provide competitive advantage. Speedy growth in the domestic market encourages local firms to introduce new technologies in a more rapid manner. Local firms also benefit from sophisticated and demanding domestic buyers as they are able to make headway in global competition by first experimenting in the domestic market (Moon and Kim, 2010). More educated and knowledgeable consumers can increase demand sophistication, thereby improving the quality of the market. Moon et al. (1998) and Moon and Kim (2010) applied average annual growth rate to measure the size of demand conditions. However, this proxy does not directly represent the absolute size of demand conditions; this study also uses GDP (current US$) per se for size. Since Moon and Kim (2010) argued that growth rate is important, this study modifies growth rate, incorporating GDP together, thus GDP growth index (GDP GDP growth rate). This avoids a distortion of the same growth rate vis-à-vis different absolute sizes which results in a unbalanced outcome (Parc and Park-Barjot, 2014). For example, the absolute value is very different for two cases: 5 per cent of 100 and 5 per cent of 1,000. A more direct variable, sophistication: quality (survey) is added to measure the sophistication of demand conditions as demonstrated by Parc and Park-Barjot (2014). It is hypothesized that the education level of consumers increases demand sophistication. Therefore, education index, which is used in Moon et al. (1998) and Moon and Kim (2010), is replaced by school enrolment (tertiary) since education index is based on mean years of schooling (of adults) and expected years of schooling (of children) [United Nations Development Programme (UNDP), 2011]. However, it can be argued that most consumers are adults. Therefore, this study adopts the approach by Parc and Park-Barjot (2014): only tertiary school enrolment (per cent gross) is utilized as it is more directly related to the sophistication of (adult) consumers. This choice makes more sense because the East Asian region is well-known for its higher education rankings (Morris, 2014). For international variables, export of goods and services (million US$) is more related to the size of international demand conditions, therefore it is more reasonable to include this proxy in line with Parc and Park-Barjot (2014). When a country opens its market, it will be more efficient and sophisticated. Thus, services and goods openness is newly added. The other variables used in the previous studies are kept in this research, such as export of goods and services (per cent of GDP) and export diversification (per cent of expo. without top 3). Related and supporting industries. The third determinant of national competitiveness is related and supporting industries that are locally and internationally competitive. These industries are important in supporting and expediting other industries within the economy

(Moon and Kim, 2010). In this study, to measure the relative importance of these industries, we have chosen general infrastructure such as transportation and communication in both domestic and international aspects, as previous studies have done. While other proxies from previous studies are kept in this study, passenger cars (per 1,000 people) and mobile cellular phone subscriptions are newly added to keep up with the modern business trends, again in line with Parc and Park-Barjot (2014). It is hypothesized that more passenger cars mean not only efficient road quality but also an effective infrastructure that can facilitate the automotive needs of consumers. The proxy mobile cellular phone subscription has become recently as important as fixed line phones, and to some extent, it is considered to be more important. For international variables, container port traffic (TEU) and Internet users (per 100 persons) are newly added, having recognized that maritime transportation is as important as air traffic for East Asian countries (Parc and Park-Barjot, 2014). As well as this, Internet infrastructure is a must for any business environment, particularly for international business, in modern societies. Air transport and international voice traffic have been adopted from previous studies. Firm strategy, structure and rivalry. The fourth determinant of national competitiveness is firm strategy, structure and rivalry, in which firms are created, organized and managed as well as the nature of domestic rivalry (Porter, 1990).[4] Porter (1990, p. 117) argues that domestic rivalry is superior to that with foreign competitors. This argument may be true in large economies such as the USA but not in small economies such as Canada (Rugman, 1990), Korea and Singapore (Moon et al., 1998). Therefore, two new proxies, firm strategy and domestic rivalry are added as domestic variables. International competition is also added as the other international variable (Parc and Park-Barjot, 2014). While equal treatment of foreigners and openness to foreign products were utilized as proxies for domestic and international variables respectively in the previous empirical tests (Moon et al., 1998), there are now more relevant data for this study in the form of research on national competitiveness conducted by the Institute for Industrial Policy Studies (IPS). Their study provides a data set with which to measure the degree of domestic and international rivalry through survey data (Moon and Kim, 2010). Therefore, equal treatment of foreigners is moved to international variables as they are more suitable for this area as demonstrated by Parc and Park-Barjot (2014). Empirical results of the diamond test To compare Japan’s competitiveness with neighboring countries, in line with existing studies (Moon et al., 1998; Moon and Kim, 2010; Parc and Park-Barjot, 2014), the proxies for domestic and international independent variables are transformed into a “competitiveness index” as shown in Table III (for the values of domestic and international variables, please refer to Tables AI and AII in the Appendix). It is important to note again that for the competitiveness index “100” is given to the proxy that has the highest value, and a relative ratio in terms of percentage is given to the proxies of the other countries which have the lower value. Later, the average is calculated for the variables. It should be emphasized that these are used for illustrative purposes only as indications of a comparative position visà-vis peer countries (Moon and Kim, 2010; Parc and Park-Barjot, 2014). Compared with previous studies, these results show several interesting points. Moon et al. (1998) applied data from 1992 and 1993 and those of Moon and Kim (2010) are from between 2004 and 2007. Moon et al. (1998) showed Korea’s domestic diamond as slightly larger than that of Singapore. However, Moon and Kim (2010) revealed a reversed result;

Japan’s economy

441



As for the global diamond, a summation of the domestic and international competitiveness indices, the results show that all four determinants’ indexes for Japan decreases. The factor conditions’ index shows a slight decrease; 61.13 in 2000, 61.04 in 2005 and 59.43 in 2010. The demand conditions’ index also decreases and the change is more noticeable than that for factor conditions. It is 124.36 in 2000, 111.28 in 2005 and 106.56 in 2010. The related and supporting industries’ index is as considerable as that of demand conditions. 132.95 appears in 2000, 123.02 in 2005 and 113.27 in 2010. Among the four factors, the index of changes of business context is the most definite. It is 180.00 in 2000 and 193.53 in 2005. However, it decreases dramatically from 193.53 to 145.19 in 2010. Analysis and discussion When Japan’s data are analyzed in terms of value, the economy has done well from 2000 to 2010 despite various domestic and international difficulties as Fingleton (2012) has argued. However, when it comes to the index comparison with its competitors, Japan has lost its competitiveness overall. By contrast, the national competitiveness of the other countries increases; among them Hong Kong is the more modest, Korea is in the middle and Singapore and China are the strongest. In other words, while Japan’s domestic and international competitiveness are modest in terms of absolute value, its peers display greater performances both in domestic and international competitiveness (see Figure 2). Moon and Kim (2010) argue that the domestic diamond can be enlarged with the influences of the global diamond, more specifically with the aggregation of international variables. For example, they insist that Singapore’s international strengths have actually reinforced domestic determinants and resulted in further growth of its economy (Moon and Kim, 2010). Their argument can be interpreted as; although a country can improve its domestic competitiveness by itself, national competitiveness (or summation of domestic and international competitiveness) can be improved more effectively by embracing globalization in a brief time. Taking into account the fact that the two dimensions mutually reinforce one another, strengthening the global diamond by utilizing globalization is more important for smaller economies that are less self-sufficient. In this regard, it can be seen that most of Japan’s counterparts pursue policies aimed at enhancing globalization which reinforces their domestic diamond. As shown in Figure 2, over time, although the global diamonds of Japan’s competitors increase noticeably, the gaps in the domestic diamonds between Japan and other countries become less. Therefore, globalization is the crucial key in a nation’s competitiveness, and Japan should invest more effort to enhance its globalization for a further take-off of its economy. Conclusion Many scholars and media outlets tend to focus on the macroeconomic aspects of Japan’s economic difficulties. Macro-economic policies may be important but cannot directly improve a nation’s competitiveness. These phenomena are not the fundamental problems of Japan’s economic stagnancy, thus, a different approach is needed, such as the microfoundation of competitiveness as Porter has proposed. Indeed, many of these difficulties originate from a comparative disadvantage which hinders the fostering of international competitiveness, when compared with their counterparts, rather than mere macroeconomic issues. To address these issues, this paper has compared and contrasted the competitiveness of Japan with four other East Asian countries: China, Hong Kong, Korea and Singapore. The aim of this endeavor is to understand better Japan and its economic stagnancy. There are three important contributions that emerge from this study.

Japan’s economy

443



First, most of the existing studies are based on data from a limited period of time. However, this study applies a 10-year span dealing with three specific years: 2000, 2005 and 2010. As a result, these different years demonstrate the changes and trends of global competitiveness among the selected countries. Second, much of the existing literature does not compare Japan with other countries rigorously enough to reveal the fundamental factors that are responsible for its economic stagnancy. This study compares Japan with its immediate counterparts in the region. This ensures that the derived result and analysis based on comparative analysis are more meaningful. Finally, this study selects more effective variables to measure each determinants of the diamond as a way to strengthen the existing studies. It further comprises of new variables to measure competitiveness more accurately, reflecting time changes and technological advances. For Japan, Abenomics should not be focused solely on macroeconomic policies, but rather, it needs to enhance the fundamental sources of its competitiveness. For this reason, this study highlights the importance of globalization by analyzing the competitiveness of Japan with the generalized double diamond model. The results of this study shows that the problem of Japan’s staggering economy since the asset bubble burst in the early 1990s is weak globalization that induces relatively low global competitiveness overall. This has happened even though Japan’s variables are better than its counterparts in terms of initial absolute value. However, Japan’s competitors, such as China, Hong Kong, Korea and Singapore, have improved their domestic and international competitiveness significantly, particularly in regards to the international dimension. When both domestic and international activities are combined, most of these countries have outperformed Japan. Furthermore, multinational activities are not isolated but in fact do have an important influence on the domestic diamond. Although Japan had the largest domestic diamond in 2000, the other countries were able to grow over time in this area. This is due to the influence of multinational activities such as FDI, intensive market liberalization and other various internationalizing measures. The main focus of this study can be further extended from comparing Japan and other East Asian countries to investigating the ways in which changes or improvements were undertaken in those countries through globalization. In this regard, it is important that scholars and policymakers in Japan correctly understand the main causes for its economic stagnancy, namely, globalization and formulate more effective policies that embrace globalization. Such an analysis and its implications will also help both scholars and policymakers from other countries. This is not a new process. In 1854, Japan underwent the Meiji Restoration and experienced a boom in its economic development after opening its ports to American trade. Almost a century later, Japan enjoyed another significant economic leap during the 1960s with international influences, notably from the USA. Now it is once again at the crossroads; domestic- or international-focused. For Japan, the answer for economic prosperity is very evident, globalization. Notes 1. An initial draft version of this paper can be found on the website of the Graduate School of International Studies, Seoul National University. This version is updated and further developed. See Parc (2014). 2. Among the NICs, Taiwan is eliminated because of unavailability of data.

Japan’s economy

445

CR 28,4

446

3. Some data are missing for Hong Kong and Singapore; thus they are treated as “no value.” This does not change the empirical results of this study because the aim of this paper is to illustrate the trend of competitiveness change with data from multiple years; the focus is on Japan and its comparative position vis-à-vis peer countries; and the average is taken for calculating the index, thus the distortion is relatively minimized. 4. Since 1998, Porter has used “context for firm strategy and rivalry” instead of “firm strategy, structure and rivalry” for firm strategy, structure and rivalry. See Porter (1998), Porter et al. (2000) and Porter and Stern (2001). In this study, “context for firm strategy and rivalry” is referred to as “business context” by adopting Parc and Moon (2013), Parc and Park-Barjot (2014) and Parc et al. (2016).

References Auerbach, A.J., Kotlikoff, L.J., Hagemann, R. and Nicoletti, G. (1989), “The dynamic of an aging population: the case of four OECD countries”, Nber Working Paper Series, 2797. BBC News (2012), “Japan economy contracts as global slowdown hits exports”, 12 November, available at: www.bbc.co.uk/news/business-20293477 BBC News (2014), “Japan’s deficit hits record as economic growth slows”, 10 March, available at: www. bbc.com/news/business-26510495 Cho, D.S. and Moon, H.C. (2013), From Adam Smith to Michael Porter: Evolution of Competitiveness Theory (Extended Edition), World Scientific. Cutler, J., Chow, K., Chan, C. and Li, U. (2004), “Intra-regional trade and the role of mainland China”, Hong Kong Monetary Authority Quarterly Bulletin, Vol. 5 No. 4, pp. 5-24. De Michelis, A. and Iacoviello, M. (2016), “Raising an inflation target: the Japanese experience with Abenomics”, European Economic Review, Vol. 88, pp. 67-87. Dunning, J.H. (1992), “The competitive advantage of countries and the activities of transnational corporations”, Transnational Corporations, Vol. 1 No. 1, pp. 135-168. Faruqee, H. and Mühleisen, M. (2003), “Population aging in Japan: demographic shock and fiscal sustainability”, Japan and the World Economy, Vol. 15 No. 2, pp. 185-210. Fingleton, E. (2012), “The myth of Japan’s failure”, The New York Times, 6 January, available at: https://nyti.ms/2mdmDko Grant, R.M. (1991), “Porter’s competitive advantage of nations: an assessment”, Strategic Management Journal, Vol. 12 No. 7, pp. 535-548. Hasan, I., Kim, I., Teng, H. and Wu, Q. (2016), “The effect of foreign institutional ownership on corporate tax avoidance: international evidence”, Bank of Finland Research Discussion Paper, No. 26. Institute for Industrial Policy Studies (IPS) (various issues), National competitiveness research, IPS and IPS-NaC, Seoul. International Institute for Management Development (IMD) (various issues), The world competitiveness yearbook, IMD, Lausanne. Kihara, L. (2016), “Japanese exporters hurt by strong yen, threatening a fragile economy”, Reuters, 11 July, available at: http://reut.rs/29zLPAN Kingston, J. (2016), “Abe’s faltering efforts to restart Japan”, Current History, Vol. 115 No. 782, pp. 233-239. Liu, D.Y. and Hsu, H.F. (2009), “An international comparison of empirical generalized double diamond model approaches to Taiwan and Korea”, Competitiveness Review, Vol. 19 No. 3, pp. 160-174. McBride, J. and Xu, B. (2016), “Abenomics and the Japanese economy”, CFR Backgrounders, 15 February, available at: www.cfr.org/japan/abenomics-japanese-economy/p30383

Moon, H.C. and Kim, J.Y. (2010), “Comparing the competitiveness of Korea and Singapore after ten years of Asian economic crisis”, The Review of Business History, Vol. 25 No. 1, pp. 75-91. Moon, H.C., Rugman, A.M. and Verbeke, A. (1995), “The generalized double diamond approach to international competitiveness”, in Rugman, A.M., den Broeck, J.A. and Verbeke, A. (Eds), Research in Global Strategic Management: Volume 5: Beyond the Diamond, JAI Press, Greenwich, CT, pp. 97-114. Moon, H.C., Rugman, A.M. and Verbeke, A. (1998), “A generalized double diamond approach to the global competitiveness of Korea and Singapore”, International Business Review, Vol. 7 No. 2, pp. 135-150. Morris, J. (2014), “Asian countries dominate global education ranking”, CNBC, 8 May, available at: http://cnb.cx/1hV0c0o Mullen, J. (2016), “Japan’s $276 billion stimulus plan is much smaller than it looks”, CNN Money, 2 August, available at: http://cnnmon.ie/2aJCNjA Muto, I., Oda, T. and Sudo, N. (2016), “Macroeconomic impact of population aging in Japan: a perspective from an overlapping generations model”, IMF Economic Review, Vol. 64 No. 3, pp. 408-442. Ng, F. and Yeats, A.J. (2003), “Major trade trends in East Asia: what are their implications for regional cooperation and growth?”, World Bank Policy Research Working Paper, No. 3084. Ohtake, F. and Saito, M. (1998), “Population aging and consumption inequality in Japan”, Review of Income and Wealth, Vol. 44 No. 3, pp. 361-381. Parc, J. (2014), “Why is Japan’s economy staggering? Internationalisation of Japan and East Asian countries”, SNU GSIS Research Working Paper Series (RWPS), available at: http://gsis.snu.ac.kr/ academics/doctoral-program/working-paper-series Parc, J. and Moon, H.C. (2013), “Korean dramas and films: key factors for their international competitiveness”, Asian Journal of Social Science, Vol. 41 No. 2, pp. 126-149. Parc, J. and Park-Barjot, R.R. (2014), “L’Internationalisation comme facteur de développement économique: des dragons à l’envol de la Chine”, Géostratégiques, Vol. 42, pp. 81-108. Parc, J., Messerlin, P. and Moon, H.C. (2016), “The secret to the success of k-pop: the benefits of well-balanced copyrights”, in Christiansen, B. and Kasarci, F. (Eds), Corporate Espionage, Geopolitics, and Diplomacy Issues in International Business, IGI Global, Hershey, PA, pp. 130-148. Porter, M.E. (1990), The Competitive Advantage of Nations, Free Press, New York, NY. Porter, M.E. (1998), “Clusters and the new economics of competition”, Harvard Business Review, Vol. 76 No. 6, pp. 77-90. Porter, M.E. and Stern, S. (2001), “National innovative capacity”, in Schwab, K., Porter, M.E. and Sachs, J. (Eds), The Global Competitiveness Report, World Economic Forum, Geneva, pp. 2-18. Porter, M.E., Takeuchi, H. and Sakakibara, M. (2000), Can Japan Compete?, Perseus Publishing, Cambridge, MA. Prestowitz, C. (2012), “Korea as number one”, Foreign Policy, 7 June, available at: http://foreignpolicy. com/2012/06/07/korea-as-number-one/ Rugman, A.M. (1990), Multinationals and Canada-United States Free Trade, University of South Carolina Press, Columbia, SC. Scissors, D. and Yokoe, K. (2012), “Japan’s national budget: time to give up on Keynesianism”, Special Reports, The Heritage Foundation, Washington, DC, Vol. 103. Sender, H. (2016), “It’s time for investors to admit it: Abenomics has failed”, Financial Times, 27 June, available at: www.ft.com/content/f1adc838-3c3b-11e6-9f2c-36b487ebd80a Tan, H. (2016), “How Asian exporters are dealing with China’s slowdown”, CNBC, 30 March, available at: http://cnb.cx/1pLY4fB

Japan’s economy

447

CR 28,4

448

The Economist (2012), “Japan’s trade balance: seeing red–after half a century of trade surpluses, Japan is now in deficit”, 14 January, available at: www.economist.com/node/21542794 The Japan Times (2016), “Japanese economy chalks up 0.5% growth in third quarter”, 14 November, available at: www.japantimes.co.jp/news/2016/11/14/business/economy-business/japan-economygrows-0-5-third-quarter/#.WFnuZFWLSM8 The Wharton School (2016), “Will Abenomics 2.0 be enough to ‘bring Japan back?’”, KNOWLEDGE@WHARTON, 13 January, available at: http://knowledge.wharton.upenn.edu/ article/will-abenomics-2-0-be-enough-to-bring-japan-back/ The World Bank (2016), “Indicators”, available at: http://data.worldbank.org/indicator?tab=all UN Comtrade (2016), “UN comtrade database”, available at: https://comtrade.un.org/ United Nations Conference on Trade and Development (UNCTAD) (2012), World investment report 2012: Towards a new generation of investment policies, United Nations, New York and Geneva. United Nations Conference on Trade and Development (UNCTAD) (2016), UNCTAD STAT, available at: http://unctadstat.unctad.org/wds/ReportFolders/reportFolders.aspx?sCS_ChosenLang=en United Nations Development Programme (UNDP) (2011), Human development report 2011, Sustainability and equity: A better future for all, UNDP, New York, NY. Vogel, E.F. (1979), Japan as Number One: Lessons for America, Harvard University Press, Cambridge, MA. Wakabayashi, D. (2012), “How Japan lost its electronics crown”, The Wall Street Journal, 15 August, available at: http://online.wsj.com/article/SB10000872396390444840104577551972061864692. html Wang, Z. (2003), “The impact of China’s WTO accession on patterns of world trade”, Journal of Policy Modeling, Vol. 25 No. 1, pp. 1-41. World Economic Forum (WEF) (2018), The Global Competitiveness Report, WEF, Geneva. Xing, Y. (2016), “Japanese economy: facing the constraint of an ageing and declining population”, East Asian Policy, Vol. 8 No. 1, pp. 79-94. Further reading Anstey, C. (2016), “Abenomics return to fiscal lever shows failure to hit goals”, Bloomberg, 2 August, available at: www.bloomberg.com/news/articles/2016-08-02/abenomics-return-to-fiscal-levershows-failure-to-hit-high-goals Cho, D.S., Moon, H.C. and Yin, W. (2016), “Enhancing national competitiveness through national cooperation: the case of South Korea and Dubai”, Competitiveness Review, Vol. 26 No. 5, pp. 482-499. Corresponding author Jimmyn Parc can be contacted at: [email protected]



