Japan, at one time, was the pride of Asia. It was the first Asian country which beat the West in their game of industrialisation without giving up its traditional Asian values. Nowadays, in popular mind, though Japan is overshadowed by China’s rising economic power, it still remains the top provider of finance and high technology in Asia. The much-hyped moves towards Asian economic integration cannot succeed without Japan playing a pivotal role.

How Japan is changing as a result of the forces of globalisation has lessons for countries like India. Japan has recently rebounded from a recessionary situation which lasted for more than a decade. Yet, the overwhelming mood in Japan is one of gloom. Many Japanese are trying to come to terms with the unhappy realisation that Japan is losing its undisputed prominence in the industrial world.

The signs of long term decline are evident in many ways such as its shrinking workforce being forced to support a growing ageing population, the declining number of Japanese corporations among the top multinational companies in the world (despite Toyota recently replacing GM as the world’s topmost car manufacturer), shrinking aid to the developing world, the worsening public debt situation, falling stock markets as domestic and foreign investors are moving elsewhere and so on. 

Basically, the prospects of steady long term growth in Japan do not appear bright. The steadily falling dollar against yen is adding further woes for Japanese exports and growth. As a result, Japan is pushing harder for greater integration of the Asian economies and a bigger economic role in an increasingly integrated and prosperous Asia.

A major stumbling block is Japan’s continued reluctance to open up its agricultural markets – mainly due to the political power of the farm lobby. For example, the price of rice in Japan is 4-5 times higher than international prices. So, other countries are not too willing to reduce tariffs and other barriers on Japanese industrial products unless Japan opens up its agricultural markets.

Of course, Japanese companies are moving to cheaper locations like China, Malaysia, Thailand –  in order to cut its cost of production and to take advantage of the various free trade agreements that these countries are signing with others.

Though a few large firms like Toyota, Canon and Sony are doing well, the situation is becoming worse for the small and medium enterprises which constitute more than 99 per cent of companies, employing around 70 per cent of the workforce and accounting for half of manufacturing value added in Japan.

Many of these small firms are dependent on a few large firms as their major purchasers. As large firms are facing more difficulties due to rising energy costs, falling dollar and competition from China and Korea, they are squeezing hard on the small suppliers who find it difficult to resist the pressures to cut costs and prices.

The labour market in Japan is undergoing a lot of changes. Competition from lower wage countries is eroding the power of trade unions. The days of lifetime employment are over. As old timers are retiring, Japanese companies are replacing them with young workers who are working either part-time or on temporary contract. But there is also the apprehension that increasing reliance on less trained temporary workers may even be counterproductive in the long run.

Some feel that Japan needs to encourage more immigration to improve it’s vitality in the era of globalisation. The uniqueness of Japanese language and culture is a problem for foreigners to integrate easily into Japan.
So, there is a suggestion that preferential treatment be given to foreigners who study or conduct research in Japan for a few years and are more likely to take up permanent residence in Japan. Greater ethnic diversity is likely to add to Japan’s intellectual creativity, exposure to global culture and values and help international competitiveness of Japan. 

Gender bias is considered particularly conspicuous in Japanese workplace. But Japan’s ageing population is forcing many corporates to change their attitudes. For instance, some companies are starting new work shifts to help women stay in jobs after marriage and child birth.

Japan, because of its acute scarcity of both land and energy resources, feels the need to save space and energy more than most other industrialised countries. Almost everyone in Japan uses the subways and trains (which are arguably the most efficient in the world) and gets to the station by bus, bicycle or on foot. Apart from the saving of time, road congestion and petrol costs, there is a huge personal saving in terms of parking costs.

It costs around $20 to park the car for the whole day in major cities. Further, you cannot count on parking space being available when you arrive, as employers usually don’t provide parking space for their workers.
India should look to Japan for showing the ways to tackle the rising energy and space costs. More generally, the slow long term growth prospects in Japan mean that Japanese investors would have to increasingly look for better avenues of investment elsewhere which opens up huge opportunities for high-growth economies.

(The author is currently a visiting professor of economics at University of Pittsburgh, US.)