Why is Japan's Economy Slowing Down

The Japanese economy was a miracle economy for more than 4 decades from the fifties to the early nineties of the twentieth century. When Japanese goods with right functionality, high quality and utter reliability but low prices hit Western markets, they inspired research into the Japanese way of working and Kanban or Just In Time, Kaizen, TQM, Kakushan and 5S system of Housekeeping Seiri, Seiton, Seiso, Seiketsu, Shitsuke, became the new Management buzzwords in Industry all over the world.

These principles and techniques were sometimes transplanted into companies located in the west and were even successful especially when practiced by well managed subsidiaries of large Japanese corporations.

Then in the mid Nineties things started to change. The Japanese juggernaut started to slow down. Their Financial system came under stress and growth momentum got lost to the point of near stagnation. Japan continues to maintain a huge trade surplus but several sectors of industry have come under pressure and cases of downsizing have taken place with human cost (albeit with a heavy heart) which was unthinkable in the classical Japanese Management paradigm.

The new generation of Japanese no longer take life time employment for granted and are being increasingly influenced by Western thoughts, though they have along way to go to fully adopt Jack Welch style (raise the bar and fire those who fall short) of industrial philosophy.

It is not only Japan that is losing momentum. Europe has been sluggish and US has been growing on borrowed capital based consumption, Asian Tigers have been knocked around quite a bit with the banking crises in the mid nineties and some had to seriously devalue their currencies though they later manage to stabililize once again, and Latin America has seen major restucturing prompted by external prescriptions.

On the other hand China has posted continuous blazing performance for the past two decades and shows no signs of stopping. India has woken up gingerly and together with China threatens to shift the global center of gravity of economic muscle to Asia. What are the underlying themes? Is the future predictable finally?

As the global economy gets more integrated, as peak duty rates fall, as single market areas expand, as protectionist barriers get lowered, as product cycles get shorter, as time to market collapses, as significant services become deliverable over the wire, as commercially valuable knowledge and skills becomes universal, as labour mobility improves, it is but natural that economic development will find its own level, disparities will become less, investments will flow to areas where labour costs are lower and returns are therefore more attractive, in short the dawning of the new age of market driven global egalitarianism.

It is not that Japanese have suddenly forgotten to manage their industry well, They still practice 5S, Kaizen and TQM with deep respect for people. Process innovation remains as much a part of their daily routine as before. It is just that the current sluggishness is but a small part of the ongoing global restructuring unleashed by the modern age of universal communications and knowledge and free flowing capital and labour.

It is becoming increasingly difficult to take refuge behind a patent or technology or intellectual property or manangement practice or even culture and dominate the market for several years. Someone somewhere is able to quickly copy the product, process, software, management practice or design a slightly different variant targetting the same space.

The good news is that products are being taken for granted and services are the new drivers of global commerce. Of course there are still large parts of the world where basic needs of food, clothing and shelter are still out of reach for major sections of populations not to speak of higher needs like education and health care. There would be some viable commercial model in a globally integrated economic system which would fill these these voids and help them find their level.

A depressed portion of any surface is an opprtunity for a body of water to occupy just as a backward economy region is some kind of opportunity for the more advanced saturated areas. Yes to realise the potential, nationalistic barriers would have to crumble and identities would have to melt, but solutions should be possible nonetheless.