Japan is one of the major development success stories coming out of the post-War period.  But how can Japan contribute to and benefit from this "Asian Century"?

Our invited contributor, Lila Nojima from Tokyo's Sophia University, shares with us her views.

From the 1950s to the 80s, Japan grew from a virtually closed, militant nation to one of the world's biggest and most advanced economies. During this period, Japan reached convergence and the status of a highly developed nation. Currently, Japan has a relatively high GDP per capita, yet its levels are below developed nations, such as the United States and Australia. Further, Japan has very high life expectancy and very low infant and child mortality. This places Japan at the same level of development as Western nations.

Japan achieved all this success before the start of the Asian Century (21st century); however, to truly join in the Asian Century, Japan faces many challenges. Firstly, after 20 years of a stalled economy, Japan seems to be caught in a high middle income trap, unable to reach development levels of completely developed nations such as the United States. Further, developing nations, such as China, are rapidly growing and changing, while Japan grew only 1% between 1995 and 2008. If this dismal growth rate continues, in the long run, China and other fast growing nations will outpace and outcompete Japan. The Japanese government has also enacted and condoned policies which negatively impact the economy and stifle growth. Finally, Japan is severely lacking in innovative technologies, methods, and ideas that will propel the economy out of the doldrums.

For the past 10 or so years, Japan's GDP per capita growth rate has been only 1%. Compared to China or India's rates of the same period, 8.8% and 5.1%, respectively, the Japanese rate seems miniscule. Naturally, as countries develop, their growth rates slow as they can no longer just imitate other nations to grow. However, even when compared to its developed neighbor, Korea, which had a growth rate of 3.8%, Japan lags far behind. With such a low growth rate, Japan cannot expect to retain its high level of relative development in the long run. If Japan does not find ways to increase and hasten its growth, it will be left out of the Asian Century.

If the Japanese government is really interested in promoting growth and change in the country, it needs to address many issues currently hindering growth. Free and open markets are a key to economic growth; following the law of comparative advantage, each nation should specialize in what it produces most efficiently. Japan, however, continues to protect certain markets and sectors, preventing them from advancing and developing.

While most other developed nations are based around a service economy, Japan lacks a powerful service industry. Not only is it underdeveloped, but the Japanese government protects the sector, preventing it from growing and actually becoming productive. In order to overcome this obstacle, the Japanese government should loosen and reduce its protectionist policies.

Farming is another sector that the government over-protects. Instead of small, less efficient farms, the Japanese government could promote large-scale, industrial farms, such as those common in Australia, to increase efficiency and cost-effectiveness. By reducing the amount of protectionism, the Japanese government can help Japan’s service and agricultural sectors to become competitive not only domestically, but also internationally.

Secondly, although Japan is highly developed, it is still one of the worst nations in terms of gender equality, ranking below many undeveloped countries. In order to re-start the economy, Japan needs to increase its production and use of human capital. By preventing women from participating in the economy, through lack of opportunity, lack of family-friendly policies, and culturally-rooted prejudice again working women, Japan is ignoring millions of people who could have a positive impact on the economy. Many Japanese women are highly-educated and the economy would benefit from their human capital. The Japanese government should work to overcome these cultural barriers to women in the workplace, in addition to enacting more family-friendly policies, which would probably increase the numbers of women interested in and able to work and contribute to society.

Further, as Japan gets more and more developed, it needs to move away from an economy based on imitation to one based on innovation. Once a country is developed, it can no longer just copy what other developed nations do; rather, it needs to be on the forefront of development, constantly innovating and creating to spur on its growth. Currently, Tokyo is rated 22nd out of the top 100 most innovative economies worldwide. This is well below American cities such as Boston, San Francisco, and New York (1st, 2nd, and 4th, respectively), and Hong Kong (15th).

If Japan wants to remain as one of the top economies, it needs to become more innovative in areas like IT, bio-technology, and finance. Japan must advance in order to grow, and the best way to advance is to invent and create new ideas that can be exported to the rest of the world. Globalization is crucial to innovation. Domestically, Japan is quite innovative and hi-tech, but these innovations are rarely spread to the rest of the world. Harnessing global demand will increase Japanese GDP enormously, and so the Japanese government and business leaders need to begin to focus outwards, rather than in. Also, Japan should work to improve its business competitiveness and reduce red-tape and bureaucracy. This would make Japan a more appealing country with which to do business, therefore increasing its GDP and trade with the rest of the world.

Just as the Japanese are not particularly innovative globally, they also avoid fully becoming part of the worldwide political and economy system. The Japanese government is often unwilling to work with and compromise with other nations. A major example of this is the unwillingness of the Japanese government to compromise with Russia on possession of the Kuril Islands. By focusing solely on ownership and nothing else, Japan is missing out of major trade relations with Russia. Russia is the perfect complement to Japan: they are neighbors, Russia lacks human capital and economic power, and Japan lacks natural resources and land.

If the Japanese could look outwards and see the benefits of a peace with Russia, they would be able to reap the benefits of a new trading partner. Additionally, the lack of a global perspective in Japan is reflected in university studies. While China sends huge numbers of its university students to the United States and other Western countries to study, relatively few Japanese students leave Japan. If more traveled outside of Japan, they would be able to gain a more international perspective and perhaps, become more interested in pursuing more global policies. If Japan intends to be part of the Asian Century, it needs to look beyond its borders and take advantage of all globalization has to offer.

All, however, is not lost for Japan. There are many sectors in which Japan is a leader and that could help Japan propel itself into the Asian Century. Firstly, Japan is a leader in environmentally-friendly automobile production. Toyota is known worldwide for its hybrid Prius and the other Japanese car manufacturers are constantly innovating with fuel saving cars such as hybrids and electric cars. Continuing to be at the forefront of automobile innovation is one way Japan can insure that it takes part in and makes the most of the Asian Century. Secondly, while Japan is definitely not a perfect democracy, according to the Economist, it is still the most democratic nation in Asia. By standing behind and promoting democracy and freedom throughout the rest of Asia, Japan can become a leader not only economically, but also politically. Japan can spread its influence throughout Asia’s developing democracies and economies, including the Philippines, India, and Indonesia.

Finally, Japan’s unique culture is something that can be used to increase Japan’s presence not only in Asia, but also in the Western world. Amine and manga culture has already spread across the world; if the Japanese animators, in conjunction with the government, can find a way to control the industry, the profits would likely be very large. Further, as other Asian countries converge with OECD levels, Japan can exploit their higher incomes by becoming an attractive vacation destination. Tourism is a major industry and focusing on the sector, Japan will not only bring money in, but it will also be able to spread its culture to those who visit, increasing its soft power and social influence.

Overall, although Japan currently faces many challenges, I think if the government and people take the appropriate steps and make the right changes, Japan will be able to get out of its slump and succeed in the Asian Century. However, without any changes, Japan will fade into the background, and be overshadowed by economic powerhouses such as China and India. As a Japanese-American, obviously I am biased towards wanting Japan to succeed. But, beyond my own personal interests, I think Japan’s success would be to the benefit of Asia as a whole.