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1.full - OXFORD REVIEW OF ECONOMIC POLICY VOL 16 NO 2 THE...

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1 © 2000 OXFORD UNIVERSITY PRESS AND THE OXFORD REVIEW OF ECONOMIC POLICY LIMITED THE ASSESSMENT: JAPAN’S STAGNATION—CAN POLICY REVIVE THE ECONOMY? OXFORD REVIEW OF ECONOMIC POLICY, VOL. 16, NO. 2 ANDREA BOLTHO Magdalen College, Oxford JENNY CORBETT St Antony’s College and Nissan Institute of Japanese Studies, Oxford 1 For a decade now Japan has virtually stagnated. Some blame this on a succession of unfavourable shocks that began with the bursting of the ‘bubble’ economy. More appropriate macroeconomic policies, targeting inflation and/or the exchange rate, could, in this view, lead to a revival. Others argue that the country’s problems are deeper seated and require major structural reforms. Many aspects of Japan’s distinctive economic system should, in this view, be either jettisoned or profoundly changed. It is unlikely that demand- management policies can add much to what they have done so far. Deregulation is needed in many areas and would, no doubt, help, but a wholesale rejection of erstwhile institutions and practices does not seem on the cards and might well be disruptive. I. INTRODUCTION One of the more worrying features of the world economy over the last decade has been Japan’s prolonged stagnation. From being the fastest grow- ing economy in the OECD area between the war and the late 1980s, Japan has become virtually the slowest. Moreover, a number of medium-run pro- jections suggest that future growth might well re- main very subdued, if only because of the rapid ageing of the country’s population. The issues that this picture raises are important, and not just for Japan itself. Japan is the world’s second largest economy, 2 it is the first, or second, largest importer 1 The authors would like to thank Andrew Glyn and Colin Mayer for a number of helpful suggestions. In this issue, Japanese names are presented with personal names first and the spelling of Japanese words omits macrons over vowels. 2 This is the case if GDP is measured at current dollar exchange rates. Measurement in purchasing power parities would make of China the world’s second largest economy, with Japan being third. In terms of a country’s impact on the international economy, however, it is the dollar figures that are, by far, the more relevant.
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2 OXFORD REVIEW OF ECONOMIC POLICY, VOL. 16, NO. 2 of most primary products, and it holds the largest stock of foreign assets of any country. In addition, its business and labour-market practices have long been widely admired by outsiders, its technological advances have contributed to revolutionizing pro- duction methods in many areas, and its past suc- cesses have had significant effects on the manufac- turing sectors of North America and Western Eu- rope. This list could be extended. The country’s future prosperity (or lack thereof), in other words, will strongly impinge on the prosperity of the world economy.
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