January 29th, 2012
09:10 PM ET

Zakaria: The end of an era for Japan

By Fareed Zakaria, CNN

Wherever you are in the world, you've probably used or coveted some Japanese product - a Honda four-wheeler; a Toyota Prius, a Sony, a Panasonic TV, a Nikon camera. Since the 1950s, Japan's exports have flooded the world and fueled an economic miracle at home, making that country one of the wealthiest in the world. Well, this week marks a turning point - one of the world's great export engines has run out of gas.

What in the world is going on?

For the first time in 31 years, Japan has recorded a trade deficit. In simple terms, that means Japan imported more than it exported last year. Now this is not that unusual for some rich countries: the U.S. has had a trade deficit since 1975, and yet we've grown. But the U.S. economy is not built on exports. Japan's economic rise on the other hand, has been almost entirely powered by exports.

So what has changed in Japan?

The Japanese government would like to blame one-off events: Last year's earthquake and tsunami crippled factories and shut down nuclear energy reactors. The offshoot of that was decreased economic output, plus they needed to import expensive oil from the Middle East. But natural disasters have only highlighted and accelerated existing trends in Japan: A decline in competitiveness and an ageing work force.

China and other East Asian countries can now produce cheaper products and in greater quantities. Add to that a rising Yen, and Japan's exporters have been at a disadvantage globally. Toyota's chief perhaps said it best last year: "It doesn't make sense to manufacture in Japan."

Then add to this Japan's demographics. Between 1990 and 2007, Japan's working population dropped from 86 to 83 million. At the same time, the number of Americans between the ages of 15 and 64 rose from 160 million to 200 million. In a global marketplace, this is a major handicap for Tokyo.

Between 2001 and 2010, Japan's economy grew at seven-tenths of one percent - less than half the pace of America's. It was also well behind Europe. Contrast that with growth per person - or GDP per capita - and Japan actually outperforms America and the Euro Zone.

So while Japan's economy in aggregate has been hurt by this lack of workers, for the average Japanese worker income is still up and quality of life is still very high. That's partly why the country has not felt the pressure to reform.

Now it's easy to extrapolate from the data that Japan's low growth is not a failure of economic policy, but just a reflection of its demographics. But that's too simple. In reality, Japan's industry is becoming less competitive and even per capita incomes will start slowing down.

Tokyo's policymakers have failed its people - they could have opened up many of its closed sectors to competition, reformed its labor laws to make Japanese labor more attractive, cut pension benefits, and allowed more immigration. Its government could have put the country on a path to reduce its massive debt burden. Instead, we're now entering an era where one of the great manufacturing nations of history faces a looming current account deficit. With its debt at 211% of its GDP, if the cost of its borrowing increases, Tokyo would face an even greater crisis: A default.

Keeping a rich country competitive is very hard, especially in a democracy where interest groups keep asking for more - more benefits, more subsidies, more protections. They want to be shielded from competitive forces. It is happening in America, just as it happened in Japan. It's easy to forget how powerful a growth engine Japan was in the 1960s, 70s, and 80s.

But eventually, it was unable to change its ways, reform, and get less rigid. The result was decline.

For more of my thoughts throughout the week, I invite you to follow me on Facebook and Twitter and to visit the Global Public Square every day. Also, for more What in the World? pieces, click here.

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Topics: East Asia • Economy • From Fareed • Japan • What in the World?

soundoff (139 Responses)
  1. daveinla.

    Gee. Perhaps its the Chinese. We need to put China in its place.

    January 30, 2012 at 8:11 am | Reply
  2. Pete

    Prosperity is inversely proportional to population.

    January 30, 2012 at 8:36 am | Reply
  3. Tim

    The only things we export are dollars & debt. . . Oh, and and seemingly endless stream of Hollywood rubbish.

    January 30, 2012 at 8:37 am | Reply
    • James

      All the more reason to shut down Hollywood.

      January 30, 2012 at 8:39 am | Reply
  4. Brad

    Don't worry folks, this won't last forever. Old folks will out number the young eventually, then they will die off, and the young will once again be the largest demographic. During these transitional periods, it will be rough, but really only because the corporations and greedy governments want more and more and more, which a shrinking population cannot provide. You should be glad to, if populations don't grow, shrink, grow, shrink, then eventually, you will have no resources, no space, massive famine, disease and so on. Every country will have to go through this at some point or another.

    January 30, 2012 at 8:42 am | Reply
  5. Line edit

    End of an era: Zakeria can't spell "aging." What gives??

    January 30, 2012 at 8:45 am | Reply
  6. Kanuck

    Testing

    January 30, 2012 at 8:46 am | Reply
  7. Forzaman

    I wont buy the MIC stuff. I'll keep my Toyota,Seiko,Nikon all MIJ.Top quality and treasured.

    January 30, 2012 at 8:50 am | Reply
  8. Gabbo

    The learning for us here in the USA is unmistakable. We can't go on passing the buck to our great-grandchildren, or we are sentancing them to a life of servitude. Foolish liberals !

    January 30, 2012 at 8:51 am | Reply
  9. Jimmy Jazz

    Zakaria is pretty much a hater. He has never said anything positive about anything non India.. Sadly India chooses to spend the money they have on military hardware and technology. 1Billion people and no clean water. So dont look for India to fill in the gap any time soon...

    January 30, 2012 at 8:51 am | Reply
  10. Willie12345

    Fareed: As a person that has worked for the White House (as a consultant), you should consider another line of work. It's very difficult to consider your articles as unbiased.

    January 30, 2012 at 8:52 am | Reply
  11. Kanuck

    Fareed, pay them no mind. the truth is always a bitter pill.

    January 30, 2012 at 8:53 am | Reply
  12. keith

    well there goes the whole saying they told the US after WW2....'we can't beat you militarily, but we will beat you economically'....granted there for awhile they were, they bought up vast parcels of land and buildings in LA and their cars beat the crap out of our cars.....but apparently now karma has come back upon them

    January 30, 2012 at 8:54 am | Reply
    • musings

      What karma? I would say that if it was about karma, China would get the lion's share of the bad stuff for enslaving its workers. What are we today in the USA – some kind of cargo cult that worships what China drops on us but never questions the suffering it took to bring it to us cheaply? Maybe we're the ones whose karma-meter is running in the red.

      January 30, 2012 at 9:49 am | Reply
  13. carolae

    Another excuse for the stock market to take a plunge.

    January 30, 2012 at 9:05 am | Reply
  14. Amit-Atlanta-USA

    Mr. ZAKARIA IS NEVER FAR FROM HIS COVERT ISLAMIC GAME (w/o ever mentioning the word Muslim or Islam.....that comes next.....why not use the surplus populations in the ME, Pakistan and Muslim countries for reasons below...read my response below !!! ( I had to split my resp. as for some reason CNN is not allowing me to post the entire resp.)

    January 30, 2012 at 9:09 am | Reply
    • Amit-Atlanta-USA

      Mr. Zakaria says: "ALLOW MORE IMMIGRATION"....That says it all!

      January 30, 2012 at 9:16 am | Reply
    • Amit-Atlanta-USA

      Sorry – CNN is not allowing me to post my complete resp.

      January 30, 2012 at 9:58 am | Reply
      • COMC

        They are not allowing me to post anything either, what is going on here?

        February 11, 2012 at 7:56 pm |
  15. Rob

    A Tsunami and Nuclear catastrophe has nothing to do with having to import emergency needs and stop productions of some of their export products I guess. They will be up being the number car maker in the world in no time and producing quality products unlike the rest of the world. GM can not compete with Toyota even if Obama gives them a trillion dollars. Quality and price matters to an educated consumer. Besides that the Unions are the cancer that will never let GM thrive in any market place.

    January 30, 2012 at 9:30 am | Reply
  16. Amit-Atlanta-USA

    Just see how Mr. Zakaria will FIRST prescribe Immgartion as a solution, then slowly talk about the surplus people available in Muslim countries, and then once the integration becomes impossible (as it always is the case!) turn the tables on the local population crying discrimination, Islamophobia, while deriding the local population etc.

    Just read the following story by Mr. Zakarian on Breivik the Norwegian killer.
    http://globalpublicsquare.blogs.cnn.com/2011/11/21/zakaria-the-young-face-of-europes-far-right/

    January 30, 2012 at 10:53 am | Reply
  17. Amit-Atlanta-USA

    Just do a google check on the following:

    "Fareed Zakaria Europe's population immigrants from Muslim countries"

    See Mr.Zakaria's prescriptions and how turns the table against the local population in Germany, Norway, everywhere!

    January 30, 2012 at 11:00 am | Reply
  18. Rizwan_One Life

    Growth economy, farewell. Say hello to equilibrium!

    January 30, 2012 at 11:38 am | Reply
  19. TG

    We are living during a time of change unparalled in human history. Even in the apostle Paul's day, he noted that the "scene of the world is changing".(1 Cor 7:31) This is true on a far grander scale now, for the uncertainty of all aspects of life, from economic to family life to even the weather, has been dramatically altered in the last decade.

    Due to the altering of morality, whereby individuals are only concerned with their own welfare, there is a crumbling of values that once was the core of society. Lack of love is now dominating around the earth, for Jesus said that during this time period that we are living in, called his (invisible) "presence" at Matthew 24:3, 27, 37 and 39, that "because of the increasing of lawlessness, the love of the greater will cool off."(Matt 24:12) This is not good news, but bodes an uncertain future if not a hateful one.

    On the other hand, Jesus then turns around and says that there is "good news", saying that "this good news of the kingdom will be preached in all the inhabited earth, for a witness to all the nations" followed by "the end" of the present system of things.(Matt 24:14) Jesus established that a heavenly government, God's kingdom, will bring genuine peace to the earth in the near future, teaching ones to pray for it.(Matt 6:9, 10)

    January 30, 2012 at 1:08 pm | Reply
  20. John D

    So a country's population must continue to grow forever in order to be sucessful? What happens when there are insufficient resources, and the people are stacked together like sardines? Do you stop to think how ludicrous this sounds before you write it? Is there a prize to the country with the largest economy right before it collapses?

    January 30, 2012 at 4:00 pm | Reply
  21. Nick

    people made comments about the cutting pension benifits. thats not the same thing as a government hand out. my dad has a pension that he worked for. they are not alking about welfare! thats where you can have 3 generations that havent worked a day in there life. pension is what u work for. please know the difference.

    January 30, 2012 at 4:32 pm | Reply
  22. OrangeW3dge

    The biggest problem with politics and politicians is that they are afraid to tell the truth, so they end up telling lies. More worried about their personal situation and career than the entire nation of people that they are elected (or appointed) to serve. Politicians, themselves, are the bottle-neck.

    January 30, 2012 at 7:13 pm | Reply
  23. Sportbymlp

    We have serious issues. We should be working together to solve problems, not attacking each other. You would think we were all politicians, trying to get elected or re-elected. People are hurting financially, and just trying to survive. There are many causes for the lousy economy. Everyone is to blaim. Some more than others. It starts with citizens not getting involved. We hand over the reins to politicians and forget about it. We should be the watch dogs and tell Congress when they are doing wrong. If enough voters stick together we can vote out those that do the wrong thing. We can start cleaning up corruption. If we work together we can turn the economy around sooner than the forecast of at least 4 or 5 more years. I have ideas, and I am sure you have ideas as well. Think about it.

    January 31, 2012 at 4:47 am | Reply
  24. Boyu

    II am pretty ignorant on this subject, but I would like to express my opinions anyway. I don't think people should panic too much of the slowed growth or starting to see a trend of trading deficit. I think it's a natural event after poor countries like China, India and poorer asian countries start to grow. The current economy is making more people wealthy in the poorer countries at the expense of slower growth of the rich countries, the end result is more rich people overall. If this trend continues, you will see less and less poor people in this world, and more people get to enjoy high standards of life, education, and hopefully that would translate to more civil societies.

    January 31, 2012 at 6:42 am | Reply
  25. Das Boot

    When I read Zakaria's articles I am struck by three things: One, by how surprisingly unusual and perceptive his high-level analyses tend to be; two, the rarity of commentators of his caliber in today's public discourse; and three, the extreme lack of sophistication in the negative posts we see here. I suppose it is one of the many drawbacks of democracy: Fools will always insist on speaking up and we are obliged to wade through the result. I suppose, in a way, that we should celebrate the fact that fools do feel empowered to speak up.

    January 31, 2012 at 1:22 pm | Reply
    • Bianca

      Surprised at you failure to see the rather unsophisticated pattern of Zakaria's analysis. It scripted and predictable. The urging of "reforms" that nobody ever benefited from. On the contrary, many countries have been ruined by this shallow brand of "economics". But for those who see this as "sophisticated', everyone else must look like a fool.

      February 6, 2012 at 4:45 pm | Reply
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